In today’s world, companies across almost every industry are focusing on sustainability efforts. Once thought of as a voluntary, altruistic measure, eco-conscious corporate practices are now becoming mandatory in many sectors.
As more investors begin to screen businesses based on environmental, social, and governance (ESG) standards, a pivot towards sustainability is crucial. Insurance agents can play a key role in enforcing ESG criteria on their clients, especially in the hospitality and restaurant industry. Here’s how insurers can incorporate sustainability into their existing business practices, and help their clients comply with ESG criteria.
What Are ESG Standards?
With looming climate threats and a global focus on sustainable practices, many investors are focusing on businesses that adhere to stricter eco-friendly practices. Environmental, social, and governance criteria are used by investors to determine whether a business is operating in an environmentally friendly manner, and investors use ESG standards to safeguard themselves against potentially risky investments.
There are three subcategories within ESG that help determine how well a company is doing. The first is environmental: This criterion focuses on a company’s energy use, carbon footprint, and compliance with environmental policies, among other things. The second is social, which refers to how a company interacts with its stakeholders, employees, and community — the workplace environment, its volunteer efforts, and its overall ethics.
The final criteria are governance, which essentially refers to a company’s transparency and accountability. A company with successful governance has diverse leadership, avoids conflicts of interest, and generally follows fair and appropriate decision-making practices.
The Restaurant Industry Is Looking to Adapt
While many industries are working to adopt sustainable practices, both due to investor demand and customer interest, the restaurant industry, in particular, is poised for a massive pivot towards eco-friendly practices.
Already, a younger generation of consumers is demanding eco-conscious options, with polls showing that they prefer to spend their money at businesses that use local and sustainable products. Many restaurants, from small kitchens to chains, are adding plant-based options to their menus in response to consumer demand.
The pandemic also proved that waste reduction was of high importance for many consumers, prompting restaurateurs to adapt to sustainable packaging materials — even if it costs more. For several years now, many restaurants have been abandoning single-use plastic in favor of eco-friendly alternatives (especially as many major cities have banned single-use plastic altogether).
How Insurance Agencies Fit In
With sustainable practices on the rise, insurance agencies are a key player in driving change. ESG-compliant businesses are often safer investments, and encouraging clients to adapt to these criteria can lead to better investments and safeguard against environmental, social, and governance risks. Insurers who advocate for sustainable practices will encourage other industries to get up to speed.
Additionally, a thorough knowledge of ESG standards will help you land new clients and provide specialized assistance to businesses with a focus on sustainability, such as the restaurant industry. Agents and brokers should be aware of ESG criteria as it may affect potential claims and losses. Directors and officers, for example, may be called upon to defend shareholder class actions, derivative lawsuits, and other ESG-related claims.
Ultimately, the trend toward sustainability isn’t going away — many insurers are already moving away from high-risk clients in fossil fuels, for instance — so it’s crucial that agents launch products and offerings that meet the needs of environmentally conscious clients.