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Treasury Teams Taking to Heart the Force of the ESG Wave Barreling Across Atlantic

By February 25, 2020 February 26th, 2020 No Comments

Discussing insurance, investing and BlackRock’s Larry Fink, NeuGroup members weigh in on ESG.

The potentially dramatic and varied impact on multinationals from the environmental, social and governance (ESG) wave barreling across the Atlantic from Europe is hitting home for a growing number of US finance teams. That was among the key takeaways from comments by treasurers gathered in Dallas for NeuGroup’s first meeting of 2020.

Thanks for the warning. One the most interesting revelations involved the effect of ESG on insurance.

  • One treasurer said a French insurer sought to “squeeze language” on a recent casualty policy renewal in light of the potential social concerns arising from the company’s defense industry products. Another member planning to implement an auto policy for his company’s European fleet appreciated the heads-up.
    • “We’re taking out all local policies, so it’s good to hear about your experience. We’ll probably run into that,” he said.
  • US insurers increasingly use ESG to help measure risk in the policies they’re underwriting so “if your company has a bad ESG score, then you’re probably going to pay a higher premium,” NeuGroup’s Scott Flieger said.

The Fink Effect. The meeting took place just three weeks after BlackRock CEO Larry Fink, in his annual letter to CEOs, announced initiatives placing sustainability at the center of the giant asset manager’s investment approach, including exiting incompatible investments and launching new products that screen fossil fuels.

  • One treasurer, underscoring the significance of the letter, said, “If your company is publicly rated, BlackRock is probably one of your top five shareholders, and if it wants to see what you’re doing in that space, then ESG is coming.”
    • The possible implications of what’s coming include something already seen in Europe: ESG pricing grids that borrowers may encounter alongside credit grids on their credit facilities.

Risk alarm bell. Mr. Flieger made the point that screening for ESG can pay off for investors beyond doing what’s beneficial for society. “Investors are using these ESG scores not only for socially responsible sustainable investments, but to identify which might be susceptible to a significant tail-risk event,” he said.

Avoid controversy. Strong ESG scores can be undermined by “controversy” scores, generated by the frequency of a company’s negative press. Funds likely won’t share the ESG reports they pay the scoring firms for, but treasury executives should ask them for details. “Because if I’m going to be invested in ESG, my company better be in those funds,” one member said.

Antony Michels

Author Antony Michels

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