Insurers can expect their commitments to sustainability to come under increasing scrutiny through 2021. They can take big strides forward by carefully managing their procurement of goods and services—like major carriers Zurich Insurance, Allianz, and Swiss Re who use their procurement spending to promote sustainability within their own organizations and among their suppliers.
It’s vital that insurers embrace sustainability as an integral part of their corporate strategies to meet the demand for sustainable solutions coming from all spheres of society, to manage increasingly complex risks, and develop new business solutions. They need to transform themselves into what I described earlier in this blog series as “sustainable insurers”. Such far-sighted insurers put sustainability at the heart of all their key decisions. They consider the possible impact of their decisions on the environment and on all spheres of society.
Corporate strategies that successfully embrace sustainability need to address a wide spectrum of business functions and resources. I’ve already discussed the importance of sustainability ecosystems that can provide insurers with a network of partners to help them achieve their sustainability goals. I’ve also talked about how insurance providers can use digital technologies, especially cloud services, to increase their support of sustainability.
So how can they also use procurement as a lever?
Procurement offers insurers plenty of opportunities to quickly step up their commitment to sustainability. By revamping their procurement policies and procedures, carriers can swiftly enhance their sustainability credentials. They can, for example, select service providers that are committed to sustainability initiatives such as environmental-friendly manufacturing, employment diversity or job creation in low-income communities. Energy procurement is especially ripe for sustainability improvements. If offers insurers the opportunity to encourage green energy and reduce demand for fossil fuels.
Well-managed supply chains reduce the risk of reputational damage.
Several big insurers in Europe have already identified procurement as an important feature of their drive to enhance sustainability. Zurich Insurance, Allianz and Swiss Re, as well as other carriers such as Munich Re and AXA have aligned their codes of conduct for suppliers with the principles of the United Nations Global Compact (UNGC). These principles outlaw slavery and discrimination, and promote human rights, environmental protection and sustainability within supply chains.
Sustainability-focused supply chain management enables insurers to advance towards their own sustainability goals while also encouraging other companies to progress with them. It can also reduce costs, enhance profitability, and increase shareholder value. Furthermore, improved supply chain controls can reduce the risk of reputational damage that an insurer could suffer as a result of the actions of one of its suppliers.
Zurich Insurance, the top-rated insurer in the 2020 Dow Jones Sustainability Index, has devised a global sustainable sourcing vision to strengthen its commitment to sustainability. The vision, which supports the UNGC principles, provides a framework and a set of values to ensure that sustainability is an important factor in all of the company’s sourcing and procurement decisions. It considers suppliers’ social, environmental and ethical conduct. Zurich is also working with its suppliers to promote social and environmental initiatives. It collaborated with Ninety Consulting, for example, to fund a clinic in Kenya. It has also, together with the Wildhearts Group, funded programs that address gender inequality and promote social mobility.
Allianz has been particularly effective in its use of its procurement activities to improve its contribution to sustainability. By the end of 2019, around 97 percent of its suppliers, responsible for combined billings of €1.8 billion, had committed to the Allianz vendor code. The code is aligned with the standards of the UNGC and the International Labour Organization (ILO). Allianz has also reconfigured some of its ordering systems to prioritize sustainable solutions and is revising its car fleet policies to curb the use of fossil fuels.
Swiss Re is using the EcoVadis sustainability assessment platform to see whether its suppliers are complying with its UNGC-aligned group sourcing standard. The platform enables the insurer to systematically measure the performance of its suppliers and, where necessary, helps them to improve. Swiss Re planned to have assessed all of its major vendors, which together receive about 80 percent of the insurer’s spending, by the end of 2020.
Munich Re expects its suppliers to adhere to the UNGC principles. By the end of 2019, compliance with the UNGC principles had been introduced into nearly 80 percent of its framework agreements with suppliers.
AXA requires its suppliers to comply with the principles of the ILO which prohibit child labor, forced employment and discrimination and promote employee wellbeing and freedom of expression. It has also implemented a corporate responsibility risk assessment of its suppliers to measure their contribution to environmental and social upliftment, the impact of their services and products on end-users, the quality of their supply chains, and the integrity of their businesses.
As we move further into 2021, insurers will increasingly need to demonstrate their commitment to sustainability. By improving their management of procurement practices, insurance providers can strengthen their support for sustainability while also encouraging their business partners to follow their example.
Source: Accenture
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