Evaluating ESG credentials: Simon Tighe, Chaucer

Simon Tighe, group head of Investments, Treasury & Credit Risk, Chaucer Group, talks to Emerging Risks about its innovative ESG scorecard, developed in conjunction with Moody’s.

Why has Chaucer has developed this new scorecard- what was the thinking behind it? And why choose Moody’s Analytics?

The scorecard came out of many years of work we have been doing at Chaucer, particularly within the investment team. I came into Chaucer in 2017 and took on investments in 2018, and from that moment on I started looking at how the portfolio looks against traditional ESG metrics: what does the investment portfolio look like, and how do we transition it to a more sustainable path?

We started that journey with our asset managers, and then really started to get it on the board agenda. We have been very lucky at Chaucer in that the board and executive team have gotten involved from the very start: CEO John Fowle in particular has been the energy behind our ESG mission. As soon as I came to him with it, he agreed that this was absolutely something we had to get on top of. And as an insurance company, we need to have our own voice in this space.

We looked at external ratings of ESG and scoring through that, and asking what we could do with insurance- how do you do that with your counterparties? Is there anything out there like a credit rating? So we started looking for data that was out there, and as anyone looking as ESG has discovered, there was no data out there in a single place, or at least trustworthy data in a single place. So the biggest problem we had was: how do you come up with your full ESG profile in a way that is authentic to you as a business and is also trustworthy?

I was doing some work with Moody’s, and the discussion grew from there. They have an amazing treasure drove of data, and our view became that we could get the data in, and use that data to present Chaucer’s own view of risk on top of that, and come up with what we think is important for ESG.

What are the types of criteria on which businesses will be evaluated across Environmental, Social and Governance issues?

During our discussions on how we would use the data, we agreed that we would adhere to the UN Sustainable Development goals, and to use them as our guiding light. They are our foundational principles.

At the moment we are doing a post-bind analysis, but we are also building out the pre-bind, where it will inform the underwriting decision, and will also inform the investment decision. There are 158 data points and 44 risk criteria… any gaps that we perceive we will provide to our counterparty and say ‘these are the gaps, you are not scoring very well, what’s your plan to fix them?’ And then we will monitor them against our plan.

How Chaucer will work alongside its clients, suppliers and other business partners to help them track and improve their performance?

We asked the question: can we incentivise companies we insure to move towards a more sustainable future? That’s when the scorecard came to life. We want to use this as tool to assess the ESG profile of our counterparties, but also to identify the areas we think these counterparties can improve on.

Are you confident you can have a meaningful dialogue?

 Yes. The key thing is that everyone is struggling with this. Think about the resource behind this: it is a massive task for any company, and anything we can do to make our clients’ journey on this easier will be welcomed. We’re looking to take the pain out of it for them.

We will look at them through a risk lens, show them the gaps we have found, and say to them that if they want to work with us, then we want you to work on this. We’re happy to work with you, but you have to commit to doing it. We think there is an appetite for that leadership from the insurance market.

Isn’t all of this simply greenwashing?

 We are using data and we are anchoring it on the UN Sustainable Development goals- that’s how we are coming up with our score.  We are not trying to say that Chaucer is better than anyone else, or that we know better than anyone else, we are saying that we want to use a data-led risk assessment, and to use our underwriting skills of that assessment to inform our decision of who we think performs well that is authentic to our view of ESG.

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