Regional approach needed for ESG underwriting strategies: Africa Specialty Risks

By Suzan Pardesi, Head of Energy at Africa Specialty Risks

 

ESG has emerged as a potential solution to our sustainable development agenda. Used as a regulatory-mandated reporting tool, it is believed ESG can propel the global economy towards a more sustainable path of development to ensure we meet our present responsibilities without causing further environmental harm and compromising existing and future generations, while promoting important social and governance standards.

It is on this basis that, over the last few years, we have born witness to a significant acceleration of adoption rates when we look to incorporating ESG principals into financial regulatory requirements across almost every jurisdiction. But in this pursuit, a one size fits all approach can often be seen.

African countries are actively participating in the global dialogue and making strides to align with international standards. Many African countries are still in the process of economic development, focusing on infrastructure development, poverty reduction, and basic needs. While ESG considerations are gaining importance, there might be a greater emphasis on addressing immediate economic and social challenges compared to more developed regions.

Moreover, different sectors and asset classes have distinct ESG characteristics and corresponding considerations. This is particularly true of insurance and underwriting.

It stands to reason then that what is needed now is a far more regionalised and nuanced approach to ESG when underwriting that considers the context-specific materiality of environmental, social and governance factors. Most relevant is the consideration of where a country or region may be on its economic development journey – be it well advanced economies or the developing countries – and account for specific factors such as the energy generation mix, technological advancements and economic growth rates.

This approach is particularly relevant for Africa, a continent far more complex than North America and Europe due to differences in market size and penetration, socio-economic expectations, and a lack of standardisation among brokers, insurers and the insured.

Despite the complexities, African countries have ample opportunities to leapfrog others in the energy transition as they have less historical reliance on fossil fuels and more resource potential in renewables. The CO2 output across the continent is minimal at just under four per cent of the global total. Renewable energy is expected to grow to 180 GW by 2030 and 1.2 TW by 2050, with some African countries already deploying renewables, including Kenya with an 80% renewable power mix and South Africa, Egypt and Algeria with significant solar capabilities.

At ASR, we believe that the insurance sector can assist Africa in its transition to cleaner energy by developing a regulatory framework that supports clean energy development and provides incentives for energy efficiency while protecting the interests of all stakeholders. In addition to supporting the framework, insurance companies can also increase access to credit, and lenders are more willing to lend money to individuals or businesses with insurance cover regardless of the type of policy.

ASR can offer risk assessments, training programs, and technical assistance to help businesses and communities understand and manage risks. By enhancing risk management capabilities, ASR can enable stakeholders to make informed decisions, reduce vulnerabilities, and adopt sustainable practices.