2022 Innovation Awards: Environmental, Social and Governance Risk Rating

Marsh
Environmental, Social and Governance Risk Rating

A hard-to-satisfy demand for information on private companies’ environmental, social and governance practices prompted Marsh LLC to create a tool to help manage ESG risks and tap additional insurance capacity. 

Marsh’s Environmental, Social and Governance Risk Rating, launched in March, gives smaller private companies a free tool that gauges how they measure up to international ESG standards.  

Marsh’s largest clients generally are rated by agencies that rely on publicly available information to assess their ESG performance, said Amy Barnes, head of climate and sustainability strategy at Marsh in London.

 “There wasn’t a good solution for private companies,” which typically don’t get the same attention as large public companies from rating agencies,  and as demand for ESG-related information has grown, the broker saw the need for “a mirror that showed ESG performance relative to international frameworks,” she said.

“Our tool doesn’t give Marsh’s view of what good ESG is,” Ms. Barnes said. Instead, it measures against more than 10 international frameworks including those from the Global Reporting Initiative, the World Economic Forum and the United Nations’ Principles for Sustainable Insurance.

“It sets a high bar because some of the smaller private companies wouldn’t typically hold themselves to some of those very high reporting standards,” Ms. Barnes said.

When an organization completes a confidential self-assessment, it receives an overall ESG risk score as well as a rating on 18 individual themes that include biodiversity and nature loss, climate change, supply chain, dignity and equality, and governance strategy. The theme scores allow companies to pinpoint areas where attention is most needed. 

The scorecard also considers controls in place to comply with ESG laws and regulations, how an organization reports ESG-related metrics and its resilience in identifying and addressing the risks. 

Organizations are able to benchmark their performance by industry and geography, Ms. Barnes said. 

Insurers are offering further benefits to organizations with an ESG rating. 

Liberty Mutual Insurance Co. offers climate-related and sustainability risk advisory services to Marsh clients in the United States and Canada that hold the ratings. Specialty insurer Beazley PLC offers additional global insurance capacity through its Lloyd’s of London Syndicate 4321 to clients whose ESG scores meet a threshold. 

Even though the tool was built with smaller companies in mind, it has attracted larger organizations. A recent look at user demographics revealed that more than 20% of respondents have annual revenue of more than $1 billion, and 27% are global companies. “A real mix,” Ms. Barnes said.