In an exclusive interview to SAFETY4SEA, Mr Lars Lange, IUMI Secretary-General, refers to the important work that IUMI’s ESG Working Group has undertaken for raising awareness for the increasing importance of marine insurance specific ESG issues. Mr. Lange notes that industry has realized the importance of embracing ESG in tis operations but there needs to be less talk and more action and to create a level playing field for everyone to contribute.
urthermore, Mr. Lange considers the young generation as the driving force behind ESG and the new trends and technologies necessary to achieve a more sustainable future.
SAFETY4SEA: What are the top priorities in your agenda with regards to ESG for the next five years?
Lars Lange: Due to the growing relevance of environmental, social and governance (ESG) issues for marine insurers, the IUMI Executive Committee recognises the importance of ESG and decided in 2021 to establish an IUMI ESG Working Group.
IUMI’s ESG Working Group comprises members who are responsible:
- For developing and regularly updating a mid-term and long-term overall work plan, strategy and vision for IUMI’s approach on ESG issues which considers a 10+ year timespan for IUMI’s ESG strategy.
- For identifying key ESG topics and issues specifically relevant to the global marine insurance industry (represented by IUMI’s membership).
- For educating the IUMI membership about ESG related trends and developments relevant for the marine insurance industry.
- For raising awareness for the increasing importance of marine insurance specific ESG issues. The level of understanding of the subject varies significantly within the IUMI membership, partly due to geography where certain regions such as Europe is more well-versed in this area. Another reason is that larger marine insurance companies are more prepared for ESG and these differences need to be taken into consideration by the ESG Working Group.
- For establishing and maintaining relationships with stakeholders relevant for IUMI’s ESG work.
I would say that we have reached a point where the entire industry understands that incorporating ESG into their operations is not a ‘nice to have’ but is both essential and vital. At IUMI we strive to continue to raise awareness on this issue and the urgency of it, and strongly believe in being proactive. Now is the time to see where marine insurers can positively contribute to ESG issues. In short, there needs to be less talk and more action. We would like to avoid sustainability becoming competitive. It is important to create a level playing field for everyone to contribute.
At IUMI we cannot, and would not, tell our members what to do, this is not our role or purpose but we do educate and guide our Members. IUMI supports the UNEP Principles for Sustainable Insurance (PSI) and also the Poseidon Principles for Marine Insurance (PPMI) which both offer good guidance towards more concrete approaches to ESG matters. Finally we will continue our lobbying work with regard to ESG issues. IUMI has identified various issues that are important to ESG such as ship recycling, climate change, illegal, unregulated and unreported (IUU) fishing, to name a few, and will continue to focus our work on tangible and specific topics with concrete relevance for IUMI and IUMI’s membership.
S4S: What are the key barriers that the maritime industry is currently facing with regards to ESG? What are your suggestions to turn these into opportunities?
L.L.: One of the biggest barriers is that ESG is not as high a priority as it should be in all regions. We see very different level of awareness in different regions of our membership and in different types of companies and underwriting units. There has long been an ignorance on ESG issues and as I mentioned above, we need to act now. Another barrier is a lack of data and the importance of digitalization for a more sustainable future. Environmental data will always be a challenge to collect and recently the Poseidon Principles for Marine Insurance have been launched that may help with this. PPMI is a framework to quantitatively assess and disclose the climate alignment of marine insurers’ underwriting portfolios for the next 30 years. They have been established to engage with the shipping industry and support the transition towards ‘net-zero’.
PPMI provides a framework for transparent disclosure established on four principles which are: assessment of climate alignment, accountability, enforcement, and transparency. Fundamentally members are committing to transitioning their underwriting portfolios to net-zero GHG emissions by 2050, consistent with a maximum temperature rise of 1.5°C above pre-industrial levels by 2100.This is a ground-breaking initiative and is the first palpable step towards enabling hull & machinery insurers to support shipowners in reducing greenhouse gas (GHG) emissions. IUMI is delighted to be a Supporting Partner of the PPMI.
S4S: In your view, has our industry realized the importance of ESG? What should be the next steps towards an ESG-ready industry?
L.L.: Yes I believe that the importance of ESG has been realized but the need for necessary action has not been realized just yet on a global scale and this, to a degree, is due to uncertainty. Historically a marine insurer would underwrite by considering the risk and the claims potential of that risk, asking the question of does this risk fit in with the portfolio and exposure. Now we need to take into account non-risk related factors with ESG and these can be very generic. Larger marine insurance companies are developing indicators for a list of critical risks. This cannot be achieved immediately but committed companies are driving this forward. With ESG issues it is important to do concrete things and take concrete actions – there is no more time for talk. There needs to be a strategy: How do we integrate this process? How do we get the data? How do you work with your clients? And how do you make it measurable? It is critical that it is measurable so that you can also calculate success and have achievable targets. Through these actions, companies can measure and benchmark their data to develop KPIs and have something tangible to work with.
There are global initiatives that are helping to grow awareness around ESG issues such as the United Nations (UN) Sustainable Development Goals (SDGs). In the insurance context, the UN Environment Programme Financial Initiative’s (UNEP FI) Principles for Sustainable Insurance (PSI) are central. UNEP intends the four principles to serve as a global framework for the insurance industry to address ESG risks and opportunities.
The four principles are:
- Embed environmental, social and governance issues relevant to our insurance business in the decision-making.
- Work together with clients and business partners to raise awareness of environmental, social and governance issues, manage risk and develop solutions.
- Work together with governments, regulators and other key stakeholders to promote widespread action across society on environmental, social and governance issues.
- Demonstrate accountability and transparency in regularly disclosing publicly our progress in implementing the Principles.
The Principles have led to one of the largest collaborative initiatives between the UN and the insurance industry – the PSI Initiative. Over 200 organisations worldwide have adopted the four Principles for Sustainable Insurance, including insurers representing about 30% of world premium volume. The purpose of the PSI Initiative is to better understand, prevent and reduce ESG risks, and better manage opportunities to provide quality and reliable risk protection. I am pleased to say that inn February 2020, IUMI became a supporting institution of the UNEP PSI.
S4S: What are the lessons learned from other sectors?
L.L. I believe that we are all on a learning curve and everyone is on the same journey. A simple example is that everyone in our industry is committed to reducing CO2 emissions. IUMI’s memberships’ role is not to police their clients or tell them what to do but they do wish to offer guidance and support. We all need to develop measures to make our companies and organizations sustainable and continue with our sustainability efforts. It is important to remember that insurance is directly reliant on the sustainability of industries and clients. A major disruption to specific industrial sectors could erode the premium base of part of our own industry, and could also cause a short term increase in claims activity. We all need to work together and learn from each other.
S4S: How will new trends, technologies, concepts and innovation influence our long-term ambitions and the way we achieve them towards ESG?
L.L.: We are very dependent on new trends and technologies to help us achieve a more sustainable future. We are monitoring this very closely as it will influence the risk landscape as well as the nature of our insurable assets. For example the vessels we protect are becoming bigger and more complex and the cargoes they carry are beginning to diversify, particularly as a consequence of sustainability requirements. Looking at propulsion, we’ve seen a move to low sulphur fuels as a stepping-stone to the future deployment of alternative fuels such as LNG, ammonia and hydrogen. At IUMI we recognise that adequate risk management provision must be in place and new fuel types must be safely deployed. A change to the current risk profile means that insurers must fully identify and understand all the implications before they are able to provide adequate and comprehensive cover. This also holds true for alternative forms of energy generation such as wind, solar and tidal technologies that will continue to develop in the years to come as we transition away from fossil fuel extraction significantly. There is also an oncoming wave of digitalisation which we need to embrace and has the potential to transform the business of marine underwriting. Advances in data management, availability of data and analysis will drive enhanced decision making and risk profiling. And technology will drive efficiencies throughout the market. COVID has already forced the pace of change in this regard. It is important to remember however that with digitalisation set to grow across the entire maritime industry, the consequence of cyber-threat, cyber-security and cyber-insurance must not be forgotten.
S4S: How do you expect ESG issues to evolve for the maritime industry in the coming years?
L.L: It will evolve significantly over the coming years with new technologies and more environmentally friendly actions. The International Maritime Organization set the pace with its ambitious carbon emission targets for a reduction of greenhouse gases (GHGs) by at least 50% by 2050 compared with 2008. This goal was refined when the IMO announced the Energy Efficiency Existing Ship Index (EEXI)and the Carbon Intensity Indicator (CII), both of which are scheduled to come into force in 2023, and score vessels on efficiency. What is comforting is that the clients of shipowners are demanding ESG matters to be incorporated into their operations, which provides hope for a more sustainable future.
S4S: If you could change one thing in the industry to boost ESG awareness from your perspective what would it be and why?
L.L.: I think that we should listen to the younger generation with regard to ESG as they are the driving force behind it. The younger generation can help lead us here to show us how important ESG awareness is and why we need to understand the urgency for immediate action. I believe that the younger generation has succeeded in many ways already in telling us that there is no more time to be reluctant towards ESG issues.
S4S: What is your key message to industry stakeholders towards sustainable shipping?
L.L.: My message is simple, we must not underestimate the urgency of sustainable shipping. Decisions need to be taken now, if not yesterday, and there is no time to waste.
The views presented are only those of the author and do not necessarily reflect those of SAFETY4SEA and are for information sharing and discussion purposes only.