"Insurance Companies Truly Committed to ESG Also Achieve Profitability"

Joint Symposium of Korea Institute of Finance, Korean-American Economic Association, and Korean-American Finance Association

There has been a call for the domestic insurance industry to actively engage in ESG (Environmental, Social, and Governance) management. It is analyzed that continuing ESG activities in the long term can lead to stable growth and increase corporate value.

On the 10th, Sangyong Han, a research fellow at the Korea Institute of Finance, presented on the topic "Analysis of the Impact of ESG Management of Insurance Companies on Risk-Taking and Business Performance" at a joint symposium held by the Korea Institute of Finance, the Korean-American Economic Association, and the Korean-American Finance Association at the Bankers' Hall in Jung-gu, Seoul. This is the first empirical study analyzing the effects of ESG management on domestic insurance companies.

Hansangyong, a research fellow at the Korea Institute of Finance, is presenting on the topic "Analysis of the Impact of ESG Management of Insurance Companies on Risk Taking and Business Performance" on the 10th.
[Photo by Jeon Youngju]

Han analyzed, "ESG management in insurance companies reduces underwriting risk, investment risk, and stock return volatility risk, while increasing financial stability." This means that domestic insurers can efficiently manage risks related to underwriting and other operations through ESG management, and also achieve stable investment performance by mitigating stock price volatility and market or firm-specific risks.

Insurance companies that actively practice ESG management were less affected by the negative impacts of the COVID-19 pandemic. Han stated, "Although the insurance industry was hit by reduced face-to-face sales and economic uncertainty during the pandemic, insurers that actively pursued ESG management were able to defend profitability and corporate value," adding, "This shows that ESG management is crucial for insurance companies to achieve sustainable growth and enhance value amid increased uncertainty caused by external shocks such as COVID-19."

According to Han, the current ESG management performance of the domestic insurance industry is insufficient. According to the Korea Corporate Governance Service (KCGS), only 4 out of 11 listed insurance companies received an excellent (A) comprehensive ESG rating as of 2022. Although the disclosure of sustainability management reports will be mandatory by 2025, 25% of all insurance companies have yet to disclose their ESG management information. Due to the high cost of publishing these reports, which can amount to several hundred million won, small and medium-sized insurers have been particularly reluctant to disclose them.

As the importance of carbon neutrality rises globally, the domestic insurance industry has also emerged as a major investor in coal power. As of June 2022, the outstanding coal financing balance of insurance companies was 15.1 trillion won, accounting for 73% of the total private sector coal financing balance of 20.8 trillion won. Han mentioned, "This is a short-term profit-seeking phenomenon that contradicts ESG management and is a challenge the insurance industry must address going forward."

Hansang Yong, a research fellow at the Korea Institute of Finance, is presenting on the topic "Analysis of the Impact of ESG Management of Insurance Companies on Risk Taking and Business Performance" on the 10th.
[Photo by Jeon Youngju]

In contrast, overseas insurance companies are actively engaged in ESG management. The French insurer AXA Group conducted joint research with The Nature Conservancy (TNC) to offer insurance products aimed at preserving mangrove forests. Mangrove forests function as natural barriers that reduce flood and landslide damage in Southeast Asia. The Hartford in the United States developed guidelines for employing workers with disabilities as part of its diversity and inclusion policies. The UK’s Aviva strengthened gender diversity by appointing women to 42% of its board seats. Han suggested, "To bring visible and positive impacts to insurance company management through ESG activities, these efforts should not be one-off but carried out from a continuous perspective."

At the symposium, Daewoong Choi, a professor at the University of Washington, also emphasized long-term social value creation. Professor Choi stated in his presentation, "Corporate Social Responsibility (CSR) can be divided into two types: 'adaptive CSR,' which pursues social benefits in line with its original purpose, and 'immediate CSR,' which is a short-term and opportunistic approach taken when negative issues arise for the company. Unlike adaptive CSR, the effects of immediate CSR are temporary and do not contribute to long-term corporate value."

This content was produced with the assistance of AI translation services.