Kasha Mleko: Sustainability Challenges in the Insurance Industry
In an era where sustainability management is at the forefront of corporate responsibility, understanding the nuanced role that different industries play is vital. Integrating environmental, social, and governance (ESG) practices into their business models presents numerous challenges for sustainability managers. Kasha Mleko, an expert in the insurance and investment sectors, provides key insights into how insurers navigate the world of sustainable investment solutions. This article explores some of the challenges insurers face in building out their sustainable strategy and how Kasha’s expertise highlights the evolving solutions available.
The Role of Data in Sustainability Assessments
One of the most critical challenges for sustainability managers across industries is consistent, reliable data availability. Companies often face incomplete or outdated information, which hampers their ability to make informed decisions, especially in sectors like insurance, where risk assessment is paramount. Without robust data, it becomes nearly impossible to track sustainability metrics effectively or align them with regulatory requirements.
Kasha Mleko sheds light on this issue, stating, "One of the biggest challenges we face is the lack of consistent, reliable data across investment sectors. While data availability has improved, particularly with the introduction of corporate disclosure regimes, it still falls short of what’s needed. The absence of accurate, comparable data makes it difficult to make investment decisions. Right now, we tend to focus on identifying high-level trends rather than detailed decisions, simply because the data isn’t sufficiently consistent."
Her perspective reflects a widespread concern in sustainability management. Inconsistent data undermines the credibility of ESG claims and the ability to drive impactful change. Recent data reveals that 82% of firms report struggling with reliable data collection under the new EU reporting standards (Impact Investor). Furthermore, only 50% of large organizations are prepared to comply with the Corporate Sustainability Reporting Directive (CSRD), which amplifies the challenge of obtaining timely and comparable data across sectors (Impact Investor). This lack of preparedness significantly impacts industries like insurance, where risk assessment is integral to business sustainability.
As more companies turn to intelligent sustainability software and automated sustainability reporting solutions, there’s hope for better data management. These platforms are designed to centralize, audit, and verify sustainability data, making it easier for organizations to track their carbon footprint and meet increasingly stringent environmental standards. For sustainability managers, adopting these tools can provide the much-needed clarity and precision to navigate complex regulatory landscapes.
Double Materiality: The Unique Challenge for Insurers
The insurance industry faces a unique dual challenge regarding sustainability—understanding the risks posed by climate change and actively contributing to mitigating those risks. This concept, known as double materiality, is central to insurers' sustainability strategies, as they must assess both the risks their clients face and the broader societal impact of their underwriting decisions.
As Kasha explains, "Double materiality is incredibly important in the insurance industry. For example, underwriting risk in areas vulnerable to climate events, like hurricane or flood zones, requires a deep understanding of climate-related risks. Insurers must not only comprehend these risks but also, increasingly, support efforts in mitigating these risks. The way insurers handle these risks can drastically impact their business, highlighting the importance of both risk assessment and mitigation."
This dual focus—risk management and risk mitigation—places insurers at the forefront of sustainability efforts. Unlike many other industries, insurers are exposed to the direct financial consequences of climate-related events, from hurricanes to floods. Swiss Re’s research highlights that insured losses from natural catastrophes have grown at an average annual rate of 5.9% over the last 30 years, significantly outpacing global GDP growth of 2.7% (Swiss Re). This disparity emphasizes the increasing pressure on insurers to adapt and recalibrate their risk models to account for higher catastrophe trends while also expanding capacity to meet rising demand for protection.
As climate-related risks continue to rise, Swiss Re forecasts continued natural catastrophe exposure growth in the range of 5% to 7% annually over the medium term (Artemis). This means insurers must not only expand their capital base to meet this demand but also innovate to ensure societal resilience to future disasters. The need for additional resources, both in terms of capacity and risk management, becomes increasingly critical to protect businesses and society from escalating risks.
Decarbonization software and carbon footprint tracking tools are increasingly being used by insurers to evaluate the environmental impact of their portfolios. These tools help insurers assess climate risks more accurately and make informed decisions that support long-term sustainability. For sustainability managers, developing both immediate risk management strategies and long-term sustainability initiatives is essential to ensure that businesses remain resilient in the face of growing climate challenges.
Greenwashing in Finance: The Danger of Misdirected ESG Investments
As ESG investments have gained popularity, the issue of greenwashing has become a significant concern. Some companies and financial products claim to have a positive ESG impact without necessarily having the substance to substantiate these claims, making it difficult for sustainability managers to differentiate between authentic ESG investments and those that are merely labeled as such.
Kasha highlights this issue, explaining, "Around 2020-2021, we saw an explosion of ESG-labeled financial products. Upon deeper analysis, it became clear that some products had only minimal allocations to truly green or social projects. Fortunately, with regulatory frameworks like the SFDR, transparency has improved, and funds are now better categorized. However, early on, some investors were drawn to ESG labels without proper scrutiny, leading to potential issues of greenwashing."
Her observations are reflected in the market dynamics of the European Union, where sustainable investments have faced similar challenges. Recent data from Q2 2024 shows that active sustainable funds in Europe saw outflows of around $620 million, a sign that investors are becoming increasingly skeptical about the credibility of ESG products and are withdrawing from funds that do not meet expectations. At the same time, passive sustainable funds in Europe saw inflows of $12.4 billion, demonstrating that investor confidence remains strong in areas where transparency and adherence to ESG principles are clearer.
Additionally, regulatory tightening is beginning to have a tangible impact. In the first half of 2024, 56 European funds changed names due to new guidelines, with 24 funds dropping sustainability or ESG-related terms to comply with stricter European Securities and Markets Authority (ESMA) regulations aimed at curbing greenwashing. This indicates that the regulatory environment is responding to the growing concerns Kasha highlighted, as more funds are being held accountable for how they represent their ESG credentials.
For sustainability managers, Kasha’s insights emphasize the importance of due diligence when selecting ESG investments. The increasing regulatory pressure in the EU and the shifts in fund behavior highlight the need for transparency and verifiable data in financial products. Leveraging corporate sustainability software to track and verify ESG metrics can help companies and investors alike ensure that they are making authentic contributions to sustainability rather than being misled by marketing claims.
Conclusion
Kasha Mleko’s insights provide valuable guidance for sustainability managers navigating the increasingly complex landscape of sustainable investment. From addressing the challenges posed by unreliable data to understanding the unique pressures faced by the insurance industry in managing climate-related risks, Kasha's experience highlights the critical role that sustainability managers must play. We believe integrating decarbonization software, automated sustainability reporting, and Scope 3 software is essential for meeting these challenges head-on and ensuring transparency and effectiveness in sustainability initiatives.
As Kasha underscores, the rise of greenwashing in finance further complicates the task of sustainability managers, making it more critical than ever to rely on robust tools and regulatory frameworks. By adopting intelligent sustainability software and fostering a culture of accountability, sustainability managers can help build a future where corporate sustainability is not just a buzzword but a tangible, measurable impact on both businesses and the planet.
The views and opinions expressed in this blog are solely those of the author and do not reflect the official policy or position of any company.
