Matt Strong, CEO of Credit Specialties for UK & Ireland at Marsh Specialty, speaks to Amy Barnes, Head of Climate & Sustainability Strategy at Marsh, about how environmental, social, and governance (ESG) performance is, and will likely continue, impacting trade, and what companies can do to ensure they are best positioned to turn the challenge into a competitive advantage.


Strong: Our audience is focused on the trade, export, commodity and supply chain finance markets. For many, their number one question is whether trade will continue to be insurable if left in its current form. What are your thoughts?

Barnes: Allow me to take a step back and make some contextual observations. Generally, trade is based on a long-term view of future supply and demand. In its simplest form, this plays out in short-term activity, extending to the medium or long-term where physical infrastructure is required to facilitate its growth. All of this brings together a myriad of inputs from different actors, which culminates in the relatively simple act of delivery of the goods or services required.

None of this is new, nor is it going to change. What is new, however, is the simple fact that the past is no longer a guide to the future. Climate change is the single biggest and most challenging driver for this way of thinking, manifested by changing physical risk. And the way the world adapts to this brings transition risk. Add into this mix the fact that the ‘S’ of ESG is now firmly on the agenda of most stakeholders and you can appreciate that the continuity of trade and its insurability depends on these factors being taken into account.

The insurance market is already starting to change. The evolving frequency and severity of climate risk is being is combined with both transition risk and the change in attention paid to the societal impacts. This evolution is playing out in different ways across the different parts of the insurance market on which trade depends. This means that risks which can be transferred today via insurance policies may become hard to insure in the future if, for example, a company is not perceived to be aligned with net-zero aspirations.

While credit and political risk insurance can be key to enabling a transaction, companies also need to consider the operational exposures, and the appetite shifts which are happening in classes of insurance such as cargo, construction, and operational liability policies.

The pace of change is also increasing. The European Union is still leading the way from a regulation standpoint and is an indicator for other jurisdictions globally. In March 2021, the EU published its taxonomy, and on January 24 this year, the European Banking Authority published its own requirements, prescribing what all financial institutions are required to report on, relative to ESG. Once such reporting is in place, it creates a platform that may allow regulatory capital charges to be applied based on the adherence to or performance against the requirements.


Strong: In a landscape that is moving so quickly, how can businesses quantify what the risk is and articulate their journey in a way to maximise the insurance coverage they can obtain?

Barnes: Embedding ESG is increasingly a source of competitive advantage to the organisations that do it well. Providing clients with a clear framework from which to better understand their ESG performance is a key focus for us as it allows them to make more informed investment decisions, and potentially negotiate better insurance outcomes.

Marsh has developed a proprietary ESG Risk Rating, which is an assessment tool that measures performance across 18 ESG themes. On completion of the free assessment, our clients receive an overall ESG risk score out of 10, as well as a risk rating for each ESG component. The results help identify the most critical sustainability and climate-related risks and opportunities and allow businesses to further develop and better articulate their ESG strategies. It also allows clients to benchmark their performance against industry metrics and demonstrate their own improvements over time.

Insurers are becoming increasingly inquisitive and concerned about ESG risks, so having a strategy and road map helps. While insurers’ initial focus was heavily weighted towards environmental metrics, there has been a shift towards the interconnectivity between the three components, with an increasing focus on the social consequences of stringent environmental positions.

Insurers are also trying to be more nuanced in their views, though always within their corporate parameters. Taking a more integrated approach to ESG means that decisions are nuanced and so won’t always fit neatly into a spreadsheet with predetermined rules and formulas. For example, contemplating the potential consequences of an ‘E’ decision is subjective, which makes the outcome harder to predict. It involves critical thinking and hypothesis analysis – there isn’t a simple checklist. An investment or activity which may have a low ‘E’ rating could be critical to the people in a region from an ‘S’ perspective; in these circumstances a company may make a negative ‘E’ decision to a significantly improve its ‘S’ position.

Not everything can be risk managed away, but the sooner companies understand the challenges, the greater the opportunity there is to work with risk advisors to consider the available options. The ability to articulate the decisions which have been made, and more broadly the transition journey of a business, provides context which can influence both the ability to get insurance coverage and the terms which may apply.


Strong: Balance is indeed key across a business’ approach, though the court of public opinion is currently influencing insurance company corporate policy. This makes understanding the risk and working with a risk advisor who understands the industry challenges from an early stage increasingly important. You touched on the EU regulations, what do businesses need to know as they consider their strategies to comply?

Barnes: To reach net-zero carbon emissions by 2050, the world must halve its emissions in the next 10 years. Businesses and governments want to take action. Net-zero commitments doubled in the year to 2020, but many lack the right guide to fulfil them, both within their own footprint and through influencing and enabling their customers and partners.

This is not always as easy as it may seem. Most companies have control over their direct emissions, those in scope 1. Scope 2 emissions – indirect emissions generated by the production of purchased electricity, heating, and cooling – are also generally identifiable. Many companies, however, lack visibility of the extent of their scope 3 emissions, which comprise all other indirect emissions, including from the supply chain, as they are the hardest to measure but are often the most important.

Without the ability to measure and reduce scope 3 emissions, a company will not be able to fulfil their net-zero commitments or meet the regulatory requirements.

I know that sounds like a lot. Especially as understanding the supply chain of key partners may require transformative processes for some businesses. But it is becoming increasingly critical that companies understand their emissions gap, and what they need to do to close it.

Oliver Wyman, one of the Marsh McLennan businesses, has developed an interactive Climate Action Navigator to help businesses and governments better understand the difference and offer a single solution for actionable decarbonisation solutions.

The Navigator assigns several actions out of 17, across six themes — energy and fuels, industry, land use, building construction and heating, transportation, and negative emissions solutions. Each action shows its mitigation potential, to help companies understand what actions need to betaken to realise their climate goals.


Strong: Innovation is being delivered in relation to the way emissions are measured and reported; is there also the ability to drive market innovation in this space?

Barnes: Absolutely, though the areas of focus differ according to industry sectors. While we don’t expect insurers to be subsidising the cost of risk for our clients, we do expect them to invest in the research and development required to allow them to underwrite new and emerging risks, such as renewable energy, hydrogen, methanol, or ammonia vessels, absent any historical data – which we know insurers don’t like doing. There is still a lot of work that needs to be done in this area.

What we are looking to develop are long-term viable products and solutions. Our team is working on solutions that link credit and operational insurance offerings, aligning markets with customers across a single, compatible solution.

Ultimately, clients are looking to us to provide improved information and increased certainty, and that is what we are focused on delivering.


Strong: One of the buzzwords in this space is ‘grey rhino’, which is used to describe a highly probable, high-impact yet neglected threat.

To what do you think companies need to start giving increased consideration or importance?

Barnes: Nature. In July 2021, the UN Convention on Biological Diversity Secretariat released the first official draft of a new Global Biodiversity Framework to guide actions worldwide through 2030 to preserve and protect nature and its essential services to people. Moving forward, we know that the Taskforce for Nature-related Financial Disclosure is developing a nature-related risk management and disclosure framework, which is due late 2023.