The focus on environmental, social and governance (ESG) issues has been transforming the workplace pensions landscape for some time. It now appears to be starting to impact the group risk and broader workplace benefits sector too. To download a PDF of the round table supplement, CLICK HERE.
This was one of the areas of debate at a recent roundtable on corporate values and group risk hosted by Corporate Adviser last month. Many employee benefits consultants and advisers attending this event said they were starting to see this trend become a focus within the industry — particularly with the ESG lens widening to focus on the ‘S’ of that acronym, social issues such as employee wellbeing, diversity and inclusion, alongside environmental issues like climate change.
Key to this debate is the role that an effective benefits strategy can now play in helping define and support an employer’s corporate identity and values — which includes their own evolving sense of corporate social responsibility, be it reducing their carbon footprint, or looking after their employees.
Howden Employee Benefits senior risk consultant Paul White said this is a conversation he is increasingly having with clients, particularly in the larger corporate market.
Social impact
“10 or 20 years ago employers were either paternalistic and offered a range of employee benefits, or they weren’t and did not,” said White. “Today, though, we see employee benefits as being a key part of HR policy and practice.
“Employers are increasingly seeing benefits programmes as part of their employee value proposition, and they want these benefits to reflect their own business, what it stands for and what it should look like. So these benefits might reflect a whole range of values from sustainability, flexibility, choice or inclusivity.”
This was a view that was shared by many attending the debate.
Barnett Waddingham head of workplace health Kevin O’Neill said: “We are having more and more conversations with clients about their benefits strategy, and what they actually want to achieve, by offering a range of products, whether it is simple life assurance or employee wellbeing programmes.
“Before it might have been a case of visiting a client and using our own benchmarking data to put together a list of recommended products. Now it is a more strategic approach, where we sit down with the client and discuss what they want to achieve, and how these benefit programmes can help both employees and the employer,” he said.
AJ Gallagher senior health and risk consultant Amanda Gill agreed said corporate purpose is an issue that is starting to be raised by both larger corporates and SMEs. “This is a conversation we have been having for some time with our clients.”
Much depends on the sector the company operates in, she said, rather than the size of the business, with some forward-looking sectors more attuned to issues of sustainability and wanting their pensions and other benefits to reflect these values.
Delegates pointed out that the Covid pandemic has had a number of far-reaching effects on the employee benefits market, and this has helped accelerate trends and changes that were already happening in his sector.
Meaningful work
Zurich head of market engagement Peter Hamilton pointed to research from Cornell University in the US, which took an in-depth look at the 4.5m people that had switched jobs since the start of the pandemic.
He explained: “This large survey looked at the reasons why people had left their job. The headline figures were perhaps not surprising, with issues like salary, or relationships with a manager or colleagues playing a part. But as the research revisited this information over time and dug deeper, they found individual reasons cited for moving that weren’t specifically linked to pay and conditions.
“Around 75 per cent of people wanted work that was more meaningful. I think this is part of a response to the pandemic, and what people have lived through. As a result I think we are seeing more people looking to work for companies that share something of their values.
“Historically ESG may have been something that has sat to one side, and been in a separate department, but now I think for many employers it is helping define and embody their purpose. It’s much more about who they are as a company, what they stand for and how the business can provide some meaning in the work context.”
Becoming more strategic about benefit programmes and embracing corporate purpose can help with retention and recruitment of staff, he said. Many of those on the panel agreed this was a pressing issue for businesses in the current economic environment.
Terry Fromant, head of group risk at Premier Choice Group said businesses of all sizes are now looking for this strategic approach, where advisers are acting as consultants, looking at their business needs, rather than simply brokers sourcing the cheapest product. He said even in the SME market, where “price is still king” this more consultative approach is helping win new clients and support existing ones.
A comprehensive benefits strategy can help support corporate values and demonstrate a clear commitment to employee wellbeing and other ESG values.
But might this go further in future? Those on the panel discussed whether a provider’s own ESG track record may play a part in the selection process.
Procurement questions
This issue was thrown into relief with news last year that the investment manager LGIM was divesting from a number of companies over climate policy concerns. Those on the divestment or watch list included US insurers AIG and MetLife — both significant players in the UK employee benefits market.
LGIM says it was excluding AIG from its investment portfolios because of an absence of policy on thermal coal and concerns over a lack of disclosure of its Scope 3, or ‘value chain’ emissions — this latter reason was also cited by LGIM for its decision to divest from MetLife. Following LGIM’s announcement MetLife said it has been taking steps to be a more environmentally sustainable company.
But while ESG issues, particularly surrounding climate change, are chewed over by pension funds, trustees and investment committees, are they on the radar of smaller business owners and HR professionals, particularly those looking to re-broke group life insurance policies or set up new health insurance benefits for staff?
O’Neill said that at present these conversations are few and far between. “On the pension side of the business this is definitely a big part of the conversation we are having with clients — but we are not really seeing it yet on the group risk side. There is not much interest from clients at present when it comes to asking about the ESG credentials of potential providers.”
However he said he anticipates this changing. White agreed that in future employers are likely to ask about the ESG credentials of a whole range of suppliers as part of the standard procurement process. This will apply to group risk insurers offering employee benefits, as much as companies supplying stationary or water coolers.
“Large employers are likely to have a procurement model, that will use a standard format. The kind of questions they ask of suppliers and partners will evolve and we would expect ESG to be part of this process.”
TCFD duties
This trend is likely to be driven by incoming TCFD (Task Force on Climate-Related Financial Disclosures) regulations, which require companies to report on their own carbon footprint. As this evolves this is likely to include carbon emissions made by suppliers and partners, so selecting companies with better ESG ratings may help boost an employer’s own ESG status.
These new regulations are likely to drive change in this area, and all those on the panel said there was a need for more robust metrics on a range of ESG issues to help advisers and their clients compare the relative performance of different insurers and providers. International carbon accounting standards, for example, could make a significant difference when it comes to comparing the environmental credentials of different companies.
White though said these are still some way off, although he admits this is a rapidly evolving area. “Can I see a day when we might exclude providers from our recommendations list because they have a poor ESG rating?
“I think the answer is yes, absolutely. But you have to reach a point where you can define and have some form of measurement about why you are excluding one or more providers.”
He pointed out that consultants currently complete due diligence on providers they recommend, whether it is financial stability, data security or counter- party risk. It is only a relatively small step forward to include ESG ratings within this mix — particularly as there could be potential reputational issues for partner companies.
Fromant said that these issues are not a major issue yet, particularly in the SME market where price is still king. “The reality is that the decision on what to buy from which provider is largely driven by an employers’ budget.”
But he points out that ESG could be what he terms an “remote control” moment. “Once the first TV company offered remote controls other manufacturers quickly followed suit and it wasn’t long before this was a standard feature.
“In the benefits industry we’ve seen a similar thing happen with added value features, such as EAPs, or now virtual GPs, which are rapidly become standard on many products.
“I can envisage a time when providers offer an ESG statement alongside their insurance quotations, when this just becomes matter of course.”
Interestingly many of the consultants at the event said that clients were increasingly asking them about their own ESG credentials, raising the possibility of a trend to move towards net-zero advice.
Gill said: “When we are tendering for business this is definitely something we’re being asked by clients.” O’Neill added that advisers like his firm, Barnett Waddingham, have been focused on their own plans to become more sustainable and decarbonise.
Homer said that this is also a major focus for insurers. He said whereas previously Zurich might have been asked about what it is doing in regards to corporate social responsibility, increasingly this is being replaced with ESG-styled questions.
“It will be increasingly important to demonstrate you have good strong ESG policies and practices, covering a range of issues from sustainability to diversity and inclusion. We’re certainly seeing clients that come to us asking for more information about our ESG proposition. The market and regulations are moving in this direction,” said Homer.
Most of those attending the event though agreed that group risk remains a relatively small part of corporate spending, and major changes on ESG were likely to be driven predominantly by the pension and general insurance sectors. White said: “I’m afraid to say that the group risk sector is just not big enough as an industry to be able to drive that kind of change. But I think this change is coming and the industry needs to prepare and be ready to adapt.”
Fromant added that ultimately higher ESG standards will become the norm across all sectors, including the group risk sector, because this is likely to bring market efficiencies and improve profitability. He said: “These changes will help make businesses faster and smarter. Being carbon intensive is likely to cost more money, so companies are going to look at where they can make savings.
“We have a role as advisers to promote the providers and insurers that are getting there first. Those that do get there first have a big advantage, but it seems inevitable that other providers will follow suit because this is where the money is going to be.”
