EY’s Santenac: Regulation is likely coming to the US for ESG

EY global insurance sector leader Isabelle Santenac told The Insurer TV that there is a disconnect between the US and the EU on ESG which complicates policy for companies which operate in both localities.

“Europe is bolder on their decisions and what they do, but I think there is still this hesitation in the US, where I would say there is a sort of ‘ESG bashing’. It's not very popular in some states to say that you are committed to ESG, so you have to be a little bit cautious on what you say, what you commit to,” she explained.

Commenting from the sidelines of the annual industry Rendez-Vous in Monte Carlo, Santenac said she expected more ESG reporting to be implemented in Europe in the coming months, because firms will have to comply with new reporting regulations, such as the Corporate Sustainability Reporting Directive.

“When you have to report more, you need to ensure that what you report is accurate and fair. And we talk a lot also about 'greenwashing', so that's what the companies want to avoid,” she explained.

Santenac also predicted a shift in the US: “I think in the US, we believe there will be some regulation coming.

“As you know, there is a lot of lobbying, there are some states where, obviously, fossil fuels are a very, very important industry. So, I would say they are very pragmatic in not pushing the bar to elevate and impact them from an economic perspective,which you could argue is realistic, but in the meantime, it's a very short-term view and not doing enough,” she added.

ESG in the US has, of course, become a political topic. This was demonstrated when numerous participants in the UN’s Net-Zero Insurance Alliance left the organization this past spring.

The exodus followed statements from almost two dozen U.S. state attorneys general, who said the Alliance’s requirements violated US federal and state anti-trust laws. Santenac anticipates insurers will refocus on other aspects of ESG.

But moving away from the environmental (‘E’) element, Santenac said the social (‘S’) element is garnering increased focus.

“‘S’ is also very important, and we see a lot of insurers also focusing more, maybe, on the "S" now, and how they help the society overall, and the under-served people,” she said.

Santenac also stated that society needs to be more educated on the impacts of climate change, and governments need to be more engaged in facilitating that understanding, and helping to close the protection gap.

“And we know that governments are more interested by short-term measures than longer-term measures,” she said.

AI took some in the industry by surprise

Last year at this time, Santenac said her team considered the Metaverse part of its key priorities that could benefit the industry. But artificial intelligence was not part of the conversation at the time.

“To be honest, we didn't anticipate the generative AI acceleration. So, now it's all about generative AI, Chat GPT-4, etc. And we see this acceleration, which is going like crazy,” said Santenac.

But she said there are still many challenges around generative AI, including how to scale proof of concept.

“We can do a lot of nice demos – but then how do you put that really in production?”

Other concerns, she said, include considering the impact on the workforce and placing a government framework around AI in order to manage risk. Questions are more prevalent than answers at the moment.

“You have some insurers right now who say, ‘I don't want to use AI without any human interaction,’ because they want to still control what AI is doing,” said Santenac.

“A lot of boards say: ‘Okay, what risks do we take?’ How do you ensure you safeguard data privacy? How do you ensure you know how to use AI in all your company? How do you ensure the models you use are not biased?"

Yet with all the unknowns, overall Santenac expressed hope about the industry’s prospects for a profitable future.

“You have new risk emerging, which needs to be protected.”

Watch this 12-minute video to hear more about:

  • ‘ESG bashing’ rampant in US, while in the EU, accelerated reporting expected
  • Regulation likely coming to the US around ESG
  • Robust data essential to accurate ESG reporting
  • How AI will evolve in the insurance space
  • Emerging risk offers opportunity and positive global outlook to the industry