This paper is the first global guide to manage environmental, social and governance (ESG) in risk assessment and insurance underwriting in the non-life insurance business. The insurance industry is subject to an increasing number of global standards on ESG issues. This document provides guidance on possible actions to manage ESG risks in the insurance business. 

The purpose of the report is to

• provide optional guidance to insurance industry participants
• supporting clients and stakeholders 
• highlight the materiality of ESG issues
• demonstrate the valuable role of the insurance industry in sustainable development

The preparation of the guide consists of multi-stage research over several years. To create the guide, the Principles for Sustainable Investment (PSI) collected inputs from the insurance industry and key stakeholders through surveys, interviews, events, and evaluating feedback from market participants, supervisors, regulators, NGOs, and other key stakeholders.

The guide consists of eight actions to manage ESG issues. 

• The first action, developing an ESG approach, relates to creating a risk heat map based on an organisation’s risk appetite and risk assessment process. In this document, a heat map is provided to illustrate the degree of ESG risk across economic sectors and business lines. The provided heat map can be used as a starting point for organisations to create their own heat maps. 
• The second action, establishing ESG risk appetite, advises developing internal processes to establish certain ESG risks the organisation wishes to focus on. 
• The third action, integrating ESG issues into your organisation, relates to establishing the risk detection process and guidance on managing risk for organisations. Organisations might either develop a unique ESG governance policy framework or might integrate ESG issues into their existing risk framework and into underwriting standards and guidelines. 
• The fourth action, establishing roles and responsibilities for ESG issues, advises appointing senior-level representatives or forming a committee to oversee ESG issues and suggests ESG risk training to employees to improve efficiency in managing ESG issues. 
• The fifth action, escalating ESG risks to decision-makers, illustrates how important it is for entities to define the escalation route in every level of decision-making. 
• The sixth action, detecting and analysing ESG risk, illustrates challenges with obtaining information and difficulty in detecting associated risks. It also provides potential solutions such as using external screening tools, lists provided by NGOs and company reports.
• The seventh action, decision making on ESG risks, outlines ways to evaluate ESG risks of a company. There might be some limitations that interrupt obtaining information. In such cases, providing conditional acceptance until the renewal is recommended.
• The eighth and last action, reporting on ESG risks, illustrates the difficulties in assessing and reporting ESG risks caused by double-counting and recommendations to solve that problem. As organisations become more mature, external reporting can be implemented to provide more information to external stakeholders.

The paper concludes by providing various standards on ESG issues and the principles for sustainable insurance.

1. There is an uprising trend of integration of ESG issues and metrics into classic risk management and underwriting process in the insurance sector around the world.
2. ESG issues are increasingly recognised as potentially financially material including climate change, ecosystem degradation and pollution.
3. The report includes heat maps that show the ESG risk level of economic industries and businesses. The heat maps include examples of risk mitigation and good practice for a range of environmental, social and governance themes.
4. The initial step for the insurance industry participants is to define their ESG risk appetite and risk boundaries. Creating an ESG risk heat map across industries supports businesses to stay within their risk boundaries.
5. Appointing ESG specific roles and forming ESG risk committees are great ways to deal with ESG issues. However, the costs of separate roles and committees can be unaffordable for small organisations. ESG risk training within organisation and raising awareness for ESG risks are effective ways to deal with ESG risks.
6. As ESG issues are a relatively new concept in the insurance industry, there are many limitations to obtaining and disclosing ESG related information in business transactions. The limitations can be caused by a lack of understanding of ESG issues and an unwillingness of clients or business partners to share information. Businesses are recommended to apply conditional acceptance when they face difficulties in obtaining information about the business transaction.
7. Regularly assessing ESG risk appetite and ESG risk management frameworks are important to achieving ESG risk management goals. Moreover, reporting on ESG risk increases the efficiency of ESG risk management. As organisations grow and become more mature, external ESG reporting can be implemented.