April 9, 1997
While the policy debate drones on, the insurance industry has been quietly taking global climate change and the challenge of eco-efficiency seriously. Instead of comparing the mass of scientists (appropriately weighted for Nobel laureates) positioned on either side of the debate, a growing number of insurance companies are taking a steely-eyed business view of the issue, and coming down on the side of the so-called environmental wackos.
As I noted last year in Weather or not: Risk and the physics of climate change (NBL 5.15, July 11, 1996), “The insurance industry can’t wait for scientific certainty about climate change. It simply can’t afford the risk. ”
In fact, several years ago the US insurance industry jointly sponsored a conference on global warming with Greenpeace to explore their common interest in understanding and mitigating risks from global–two stranger bedfellows you’ll never find! And in Sweden a leading business insurer is building environmental concerns into its practice in unusual–and profitable–ways.
WASA Group is a diversified business insurance company with approximately 1,700 employees, 700,000 customers, and sales of 7,000 SEKm (approximately $1 billion). WASA uses a sustainable development framework in its insurance business, particularly with customers’ supply chain.
Recognizing potential increased exposure due to “environmental” consequences, WASA has incorporated environment risk profile–as many insurers and banks have. But WASA has gone beyond the common industry practice, and added EcoEfficiency as an additional underwriting element, and environmental advisory services for clients as a risk mitigation strategy. Their thinking is simple, if novel: more ecoefficient firms are more profitable, thus more able and likely to pay their insurance premiums, thus ensuring the insurer’s profitability; environmental advisory services then become a good investment for both advancing client ecoefficiency– and their loyalty to WASA.
“The intrinsic message is that environmental work is becoming increasingly business-driven,” says WASA Group CEO Lars Rosen. “Demands from business partners are turning into a stronger driving force than requirements issued by public authorities. This is fully in line with WASA’s ambitions. We are working to fulfill the assignments our customers give us, at the same time striving to influence them and others, to make environmental work a strategic competitive factor for our own benefit.”
WASA executive Dan Danielson echoed the observation that customers drive more continuous improvement than government regulations, which companies only try to avoid or minimally reach. “Serious and long-term environmental work will provide competitive advantages in the form of more customers, lower costs through greater efficiency concerning resources, better lending conditions, and lower insurance premiums.”
WASA’s environmental strategy includes:
- training all employees to think in closed-cycle terms.
- making purchasing and company resource utilization environmentally acceptable.
- engaging environmentally aware contractors and suppliers in claims handling.
- applying environmental criteria to risk appraisal
- integrating environmental factors into capital management
In addition, WASA analyzes its impact in relation to the four “System Conditions” of The Natural Step as an internal organization and publishes those results in its Environment Report.
Overall, WASA is internalizing extended producer responsibility for evaluating clients, companies they invest in, and companies they own, seeing direct links between their risk appraisal concerns and their environmental commitments. On one hand, they observe, “losses caused by accidents and other unforeseen events to the surrounding environment may be very extensive.” On the other hand, since pollution prevention and other environmental quality efficiency initiatives can reduce risk profiles, “there is, in general terms, favorable interaction between risk premiums and environmental acceptability.”
WASA no longer uses the term waste–what was previously thought of as waste is now considered “rest products,” resources waiting for their next use. This change in thinking, stimulated from using a life cycle perspective, has opened up new opportunities for products, services, eco-efficiencies, and collaborative relationships. (This parallels the efforts at one US service company that now considers all paper to be corporate assets, which are therefore being squandered if not recycled.)
WASA also sent a strong signal to their suppliers by selecting car dismantlers based in part on environmental criteria. The pressure represents potential opportunity, because junkyards are likely to disappear as “extended producer responsibility” takes hold in Europe; dismantlers that redefine themselves and gain competency in disassembly for reuse and recycling may be able to craft strong relationships with the manufacturers ultimately responsible for take-back.
WASA Insurance says flatly, “The president and CEO is responsible for the Environmental Policy”–not as greenwashing platitude, but as a reflection of deeply held beliefs that environmental responsibility is management responsibility–as a substantive contributor to profit and market position.
[Thanks to Russell Barton and EKOS International for their contributions to this NBL.