Environmental, Social, and Governance (ESG) investing is becoming a critical factor in the way companies operate, especially in the insurance sector. Many organisations are increasingly recognising that by integrating ESG factors into their working model, they can ensure their long-term financial stability along with creating a positive societal impact.
In this interview with TheCSRUniverse, Erum Kidwai, Senior Vice President and Head - Marketing of Ageas Federal Life Insurance, delves into the evolving landscape of sustainability practices in the finance and insurance sectors and highlights how these practices are shaping investment strategies and regulatory compliance both within and outside the insurance sector. Mr. Kidwai also talks about how ESG criteria are increasingly influencing investment decisions and the growing trend of integrating sustainability into financial portfolios.
Scroll down to read the full interview:
Q. ESG has become a buzzword in the finance world in recent times. Do you think this buzz reflects in actual investments?
A. ESG (Environmental, Social, and Governance) investing has indeed transcended being a buzzword, with significant reflections in actual investments. Over the past few years, institutional investors and asset managers have increasingly integrated ESG criteria into their strategies, driven by the understanding that ESG factors impact long-term financial performance. Companies with sound climate policies, ethical business practices, and strong governance are seen as more resilient and sustainable, making them attractive to investors looking for both financial returns and positive social impact.
In FY 2022-23, the Responsible Investing Framework introduced by several financial institutions highlights this trend. This framework, based on integrating ESG factors, and engaging with investee companies, underscores a clear shift toward sustainable investments. We aim to double our investments in sustainable portfolios every year, thus achieving our target of 100 crore by FY 2025-26. This also includes reducing our investments in high and severe-risk companies. By the end of 2024, the identified ESG factors shall be considered in 100% of the investment decisions made by the Company and will be supported by proper tracking and reporting. We also aim to proactively engage with companies and vote on resolutions that prioritise long-term interests of our shareholders. Overall, the buzz around ESG has translated into tangible, impactful changes in the way investments are made.
Q. There continues to be some apprehension in the market that an ESG-focused agenda may require a company to compromise on profits. How true is this for life insurance companies?
A. While there is apprehension that an ESG-focused agenda may compromise profits, life insurance companies are finding that ESG integration can actually enhance long-term value creation. Traditionally focused on balancing risk and return, the life insurance sector in India is now recognizing the growing importance of incorporatingESG factors in investment decisions. Companies are increasingly aware that sustainable investing not only drives positive social and environmental impact but also mitigates risks associated with regulatory changes, reputational damage, and climate-related events.
By embedding ESG considerations into their frameworks, insurers are not just safeguarding their profitability but also responding to the rising demand from policyholders for responsible investment options. In FY 2022-23, we introduced a Responsible Investing Framework, which is applicable to the entire investment portfolio and is based on three pillars – exclusion of defined controversial activities, integration of ESG factors, and voting and engagement with investee companies. This framework aims to double investments in sustainable portfolios by 2025-26 without compromising returns. The formation of an ESG Council and a dedicated Sustainability team underscores the commitment to ensuring that ESG factors are incorporated into every investment decision, proving that a well-implemented ESG strategy can align profitability with positive societal contributions.
Q. How do you see the relationship between sustainability and the financial stability of a company evolving in terms of its corporate strategy?
A. The relationship between sustainability and financial stability is becoming increasingly intertwined in corporate strategy, particularly in sectors like life insurance. Companies are recognising that integrating ESG factors into their business models is no longer optional but essential for long-term financial health. Sustainability helps mitigate risks related to environmental regulations, social issues, and governance challenges, all of which can affect a company's financial performance. By addressing these areas proactively, companies can reduce their exposure to potential legal, reputational, and operational risks, thereby strengthening their financial stability. In addition, implementing sustainability initiativeslike dissuading the unnecessary use of paper / wastage of paper, limiting the number printers / making printers password enables as well as moving from physical to cloud serves and can also be financially sound by reducing overheads.
In the life insurance sector, for example, companies are integrating ESG criteria into their investment portfolios, not just to meet regulatory expectations but to capitalise on emerging opportunities. Investments in companies with strong ESG practices are seen as more resilient and likely to offer better risk-adjusted returns over time. While there may be short-term costs associated with implementing sustainability initiatives, the long-term benefits—such as enhanced reputation, reduced regulatory risks, and improved customer loyalty—far outweigh these initial investments. As sustainability becomes a core component of corporate strategy, it is clear that aligning financial stability with ESG principles is a key to driving future growth and resilience in today’s rapidly evolving market.
Q. What are the emerging ESG trends in India? How should an organisation structure its ESG framework to remain relevant amidst the evolving economic and technological landscape?
A. Emerging ESG trends in India emphasize climate action, social responsibility, and stronger governance standards. Companies are increasingly focusing on reducing greenhouse gas emissions, adopting renewable energy sources, and implementing waste reduction initiatives. Social equity is also gaining traction, with organizations prioritizing diversity, inclusion, and community development. On the governance front, regulatory bodies are pushing for greater transparency, accountability, and ethical business practices.
To remain relevant in this evolving landscape, organizations should structure their ESG frameworks around these key trends. This includes integrating ESG considerations into all decision-making processes, from investments to operations. Establishing clear goals, such as reducing carbon footprints or achieving net-zero emissions, can provide direction and accountability. Organizations should also create dedicated ESG teams or councils to oversee the implementation and monitoring of sustainability initiatives, ensuring alignment with global best practices.
Leveraging technology for data tracking and reporting is essential for transparency and continuous improvement. Engaging with stakeholders, including employees, investors, and customers, will help shape a more inclusive and adaptive ESG strategy. By embedding sustainability into their core strategy and staying proactive, companies can navigate economic and technological shifts while contributing positively to society and the environment.
Q. How can organisations navigate the regulatory landscape in India when developing their ESG strategies?
A. To navigate India's regulatory landscape when developing ESG strategies, organisations must prioritise compliance with the environmental, social, and governance regulations, which are designed to promote sustainable and responsible business practices. A thorough understanding of key regulations, such as waste management laws and CSR requirements, is crucial. For instance, adhering to environmental laws, including Extended Producer Responsibility (EPR) for managing product waste, is vital to avoid penalties like fines and imprisonment.
On the social front, organisations must comply with the Companies Act, 2013, which mandates that companies spend at least 2% of their net profits on CSR initiatives. This ensures a focus on community development and social equity. Additionally, organisations must maintain robust governance practices, including accountability to shareholders and appointing independent directors on their boards, as per guidelines from the Ministry of Corporate Affairs (MCA) and the Securities and Exchange Board of India. By aligning their ESG strategies with India's evolving regulations, organizations can enhance brand reputation, build stakeholder trust, and create long-term financial value.
Q. What are the benefits of offering green insurance products, and how do they align with the interests of both insurers and customers?
A. Offering green insurance products presents significant benefits for both insurers and customers. For customers, these products cater to a growing desire to support environmentally responsible initiatives and mitigate their personal impact on the planet. Green insurance policies often cover risks associated with sustainable practices, such as renewable energy projects or eco-friendly properties, aligning with customers' values and fostering a sense of contributing to environmental sustainability.
For insurers, green insurance products offer a strategic edge in a competitive market by differentiating their offerings and attracting eco-conscious customers. These products not only enhance brand reputation but also create opportunities to engage with a new demographic of environmentally aware policyholders. A study conducted by the Journal of Social Commerce on the preference of young investors (Gen Z) for Socially Accountable Funds (SAF) highlighted that more than 80% of the cohort consciously preferred to invest in SAFs thereby underscoring the increasing need to create green offerings. Additionally, green insurance can lead to improved risk management by supporting investments in sustainable technologies and practices, which often result in fewer claims and lower risk profiles over time.Moreover, integrating green insurance products aligns with broader industry trends and regulatory pressures towards sustainability, helping insurers comply with evolving ESG standards. By embracing these products, insurers can build stronger customer loyalty, tap into emerging markets, and contribute positively to global environmental goals, creating a win-win scenario for both parties.
Q. How can aligning business operations with ESG principles improve shareholder returns and elevate a company’s reputation?
A. Aligning business operations with ESG principles can significantly enhance shareholder returns and elevate a company’s reputation. By integrating ESG factors, companies can mitigate risks related to environmental regulations, social issues, and governance challenges, leading to more stable and sustainable financial performance. ESG-compliant operations often result in cost savings through improved resource efficiency and reduced waste, positively impacting profitability. Additionally, companies with strong ESG credentials attract investors who prioritise sustainability, potentially increasing investment inflows and driving up stock prices. From a reputational standpoint, adhering to ESG principles fosters trust and loyalty among customers, employees, and stakeholders, enhancing the company’s public image and competitive advantage. This holistic approach not only aligns with global sustainability trends but also positions the company as a responsible leader in its industry, contributing to long-term shareholder value and sustained success.
Q. How does having a dedicated ESG council and sustainability team within an insurance organisation contribute to its overall success?
A. Having a dedicated ESG council and sustainability team within an insurance organisation is pivotal for its overall success. The ESG council ensures that sustainability goals are integrated into the core strategy, fostering alignment across all departments and overseeing the implementation of ESG policies. This strategic oversight helps in identifying and addressing potential risks and opportunities related to environmental, social, and governance factors.Meanwhile, the sustainability team executes day-to-day initiatives, manages reporting, and engages with stakeholders, driving the organisation’s commitment to sustainable practices.
Their focused efforts lead to enhanced operational efficiency, improved risk management, and stronger stakeholder relationships. Collectively, these bodies reinforce the organisation’s reputation as a responsible corporate citizen, attract investors interested in sustainable practices, and contribute to long-term business success by aligning with evolving regulatory and market expectations.
