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Daniel: [00:00:21] Hello and welcome back to Insurance Business TV. I'm Danny Wood, news editor of Insurance Business Australia. Today we're looking at how insurance companies in Australia are dealing with sustainability challenges. We're joined by Ramana James, executive general manager of Safer Communities at Insurance Australia Group IAG, the multinational insurance company headquartered in Sydney. James runs IAG Sustainability and the Safer Communities Areas, which brings in ESG climate change disclosures and other sustainability issues. Welcome, Ramona. 

Ramana: [00:00:55] Welcome. Thanks, Danny. Great to see you. 

Daniel: [00:00:57] Yeah, you too. So you're effectively IAG's chief sustainability officer? 

Ramana: [00:01:02] Yeah, that's right. Yep. Got an accountability to support our group exec and the board on our sustainability direction and how we implement and deliver on that. 

Daniel: [00:01:12] So you must have seen a lot of changes in your in your job. Esg and net zero issues seem to be in the news all the time now and have become kind of concrete agenda items, if you like, for insurance companies compared to a few years ago when they barely seem to make the news at all. In the industry, you enter a lot more pressure now than you were a few years ago. 

Ramana: [00:01:33] But then it's interesting. I've been in this field for a long time now, over 20 years, working across various corporates in Australia and leading organisations have been addressing social and environmental and governance issues for a long time. Generally, like, for example, IAG, we released some papers on the impact of climate change on Australia back in the very early 2000s. What's happened interestingly in the last couple of years is that with some of these bigger and more impactful events that corporate Australia has been involved in, impacts on reputation, on boards, boards being spilled, group execs losing jobs. There's been a greater focus from an investment point of view and from investors. And I think that's where this last two years where we've seen a real acceleration of the use of the ESG language, has certainly seen organisations from the board level through to management and beyond engage in this in an even more serious way. Even those leaders that have been doing this for quite some time in terms of what that means for people like myself in these types of roles, yeah, it means more pull. So actually parts of the organisation they are thinking through and trying to address their sustainability issues and how do they drive programs of work and therefore bringing and drawing on your strategic advice and expertise. So certainly that's a good position of being. We've all wanted to, as sustainability practitioners, be in the point where you do less of the pushing to people and you get more of the pooling of your knowledge and capability. And I think we're seeing that certainly within IAG, but across corporate Australia as well. 

Daniel: [00:03:10] So when you're talking about this pressure, you've mentioned it a bit. Where is it mainly coming from? Is it investors, governments and regulations or what is where is the concrete pressure? 

Ramana: [00:03:23] Yeah, it's interesting. I think it's expanded or increased across stakeholder groups. It's not just one of them. Interestingly, certainly where we've seen the biggest acceleration is within investors and their knowledge and understanding of these issues and that they play an important role in an organisation's financial success. And so you're increasingly seeing investors ask more questions through investor roadshows, taking, you know, sustainability indices more seriously. So certainly we're seeing that in the investor world. But interestingly, we have seen on the government and regulator side an increased focus on things like climate risk, knowing that they are significantly across the economy, but they play out in the sort of solvency and sustainability of corporations that are operating in a climate impacted world. And so APRA in the financial services sector have put out a guidance around climate risk management. So we certainly think governments take more interest. Interestingly, though, customers, people out there that buy products and services, they're increasingly being impacted by severe climate change and natural peril events. And so they're all thinking about and taking this stuff more seriously and they're starting to make choices around the products and services that they buy based on how those companies address these issues as well. 

Daniel: [00:04:38] You mentioned the roadshows that I suppose you probably go on as well, where you are taking questions from investors who are more concerned about the climate change issue. I mean, does that ever bring up some some tricky and I guess potentially embarrassing situations? There have been a few situations with other insurers where investors have tried to pass motions as that sort of wave of discontent, if you like, struck IAG yet, or are you, I guess, ahead enough of the curve to be avoiding that kind of stuff? 

Ramana: [00:05:08] It's really good question. It's where having a leadership position in this type of work is really important, not only to enable you to deliver on your purpose and your strategy as an organization, but to ensure you're able to engage with advocacy groups that are concerned in these areas. Certainly, we've been quite actively engaging advocacy groups on climate for many years and have heard heard their voices, as we've said, our climate strategy, our vision and ambition and where we're heading. And they've played a role, not the only one, but played a role in us thinking about and setting our net zero 2050 commitment, the science based targets that we have to help us get to those outcomes. So whilst we've had people engaged in and ask really good, important questions, you know, at our AGM, we probably haven't seen the level of activism that some organisations have who haven't taken it as seriously and who aren't not just addressing the issues but actually engaging key stakeholders in that process as well. 

Daniel: [00:06:05] You've mentioned your own 20 years working in this area, but I imagine working at an insurance company. Not everybody sees things in terms of climate and the importance of these issues in the same way as you do. I imagine one difficult part of your job is probably convincing colleagues is that causing issues for you in the last few years. 

Ramana: [00:06:27] It's really interesting. I, I had a view when I was joining IAG nearly eight years ago now, Danny, that financial services was probably a place where people didn't care much about customers or community. I'd worked in property and telecommunications, but I joined IAG because it's an organisation that is purpose led and has strong values and that purpose is to make your world a safer place. And so in joining an organisation that actually really lives that and believes in it, what I found was that from people that are on the front line talking to our customers day to day. Through to our group exec and our board that people actually in delivering on that purpose will naturally want to address sustainability ESG issues because they have an impact on making the world a safer place if we don't address them as an organisation. That doesn't mean that there aren't still pockets where maybe they haven't thought about it as much and there's certainly more that we can do. So I'm not suggesting it's like that everywhere across the organisation, but generally with a purpose led organisation, with values, with people that care about the work that they do, being able to engage them on issues like climate change or social equity or human rights and modern slavery generally they want to do something about it. And so then it's about how do you bring the right tools, the support mechanisms, strategic advice that enables them to then meaningfully grab that and actually try and implement something. I think your reference to the last couple of years actually has perhaps accelerated that. And so we've got even more ability to engage and influence and ensure that the work is tied to the strategy of the organisation. And it's not something that's on the side. 

Daniel: [00:08:05] When you do get pushback though, because, because I imagine you must get pushback, perhaps not so much lately, but in years past. I mean, where are the sticking points generally in a in a business like yours? 

Ramana: [00:08:17] Yeah. It's I find it really interesting is that we are all part of the world that we've always been in, influenced by those things that we've always done historically. And so I use the term inertia. There's sometimes inertia for people that have been used to doing a role or their work in a certain way. And sometimes with sustainability, you're suggesting that they might be able to adjust the way they do that work to deliver a different outcome or even sometimes a better outcome. And so sometimes it's actually being able to break that inertia. So being able to actually show people that actually work in sustainability, addressing modern slavery or building climate change impacts into our insurance products, that by doing that, we're actually supporting the commercial outcomes of the organization. And if you're able to show that shared value link, that link between social benefit and value alongside commercial value and benefit, then I found that people generally embrace that and they really want to implement and drive change. 

Daniel: [00:09:15] Then can you give us some concrete examples in terms of how IAG does its financial reporting and compliance with regulations where I guess ESG factors are actually concretely in there? 

Ramana: [00:09:29] Yeah, absolutely. So with the emergence of the Task Force on climate related financial disclosures, people may have heard of the TCFD. It gave guidance around how organizations should address climate risk and then disclose those. We were involved in the early formation of the TCFD guidelines and contributed an important to those, and then we adopted them in 2017-18. So we've been reporting against those guidelines for for nearly five years now. And in doing that, we were working on understanding and addressing climate risk as a material organizational risk, as a financial risk as it plays out across reputation, across other areas as well. But acknowledging that this is a material risk. And so way we've got about then doing that is to ensure that we're starting to align and integrate those sustainability financial disclosure assessments with our annual results and reporting. So we've been including climate related financial disclosures in our annual report, sitting alongside our financial results for a number of years now. And we're able to start to understand that climate risk in the context of our core products. So what risk does climate change have on an insurers portfolios? What risk will it have in different geographies? For example, south east Queensland with the potential risk of cyclones coming further south. And we can then look at that, what that looks like for the home portfolio. What's the likely impact of that on claims responses and average annual losses? So you start to work on addressing and understanding these sort of environmental, social and governance risks in a more integrated way with your core business, the insurance products that we sell and enable and support for for our customers as well. 

Daniel: [00:11:18] What you're saying in some way leads into this quote I'm going to read you from James. So Peter Bakker, CEO of the World Business Council for Sustainable Development. He says that current disclosure initiatives are highly welcome, but we also need to redefine the value of business that includes accounting for long term value as well as widening valuation. Blah, blah, blah. I guess the interesting thing there is he's talking about accounting for long term value in some way. That's what you're saying. But do you really feel that IAG has redefined the value of business? 

Ramana: [00:11:54] I don't think it has done that individually, Tony. I think we're like everyone working on this journey, if I use that cliche. But certainly Peter's point is a really important one. So what Peter is saying is that an organisation in running a business interacts with stakeholders more than just their shareholders. And he's saying that how do organisations get better at defining the value that they create, but also perhaps the value that they impact or erode? So in its entirety as an organisation operates and runs its business and delivers its products and services, what's the positive value it creates? But also where does it have potentially a negative impact and how does it manage and offset both that and Peter's referring to thinking in a more integrated way. So being able to align your financial performance and results with some of the sustainability issues that you are addressing as an organization, sometimes that may be around the impact from a risk perspective. So a downside impact, but it will also have upside impact. So let's look at climate change. There are new technologies that are emerging that need to be insured. How is an insurer going to address that? By creating the insurance products and policies that enable those technologies to be successful but also create a commercial value for the organization. And that is an example of where you're not just talking about a six month or 12 month reporting cycle. You're talking about multiple, multiple years of value that the organization is going to create. And so I think that's where Peter's point organizations are leaning into that at the moment. And those that are leading in this space are really working through. How do you address that in the context of both short but also longer term value as well? 

Daniel: [00:13:41] I guess to some extent here in Australia we tend to look to the bigger countries and whatever we do here that's good climate change wise is in some way dependent on those bigger countries. And in the US the SEC is looking at what's regarded as a landmark proposal to require US listed companies to disclose a range of climate related risks. Is that significant, do you think? 

Ramana: [00:14:08] Yeah, it's interesting. It's they're not the first there. I see the biggest economy and they'll influence many other economies, but they're not the first. New Zealand will be bringing in mandatory climate disclosures from FY 24 onwards. The UK have a draft exposure out where they're seeking comment because they're looking to do something similar as well. So we're seeing that in multiple jurisdictions, Danny. Of course the US won because of the size and scale of that economy. Its impact is obviously quite significant. The organizations that have been aligning their disclosures to the TCFD, which I referenced earlier, are already developing and disclosing climate and sort of related financial risks in aligned way to what the US SEC are proposing. So they're going to use the TCFD as the governing structure for their expectations around those disclosures. So as I mentioned, we've been doing that for a number of years and so we're in a really good position because we've already been disclosing using the TCFD guidelines, even if Australia, for example, were to in the future bring in a mandatory climate related disclosure requirement. We're well positioned to be able to do that. But as I said, we operate in New Zealand and that's already happening in New Zealand, so we will be doing that regardless as part of our involvement and operation in that country as well. Just another point, important point. The International Sustainability Standards Board has recently been formed, which has merged multiple other sort of guidance and standard type bodies. And so it's creating for the first time a more singular view of what sustainability disclosure standards should look like. It's using a similar structure and methodology to what the TCFD has developed, but looking at that for broader sustainability, not just the climate related piece. And so what's great about that is we're going to see, regardless of whether there's mandatory disclosure across jurisdictions, you are going to see increasingly companies disclose using the International Standards Board. And as they do that, you'll start to get more consistency and better ability to benchmark across companies as they do that as well. 

Daniel: [00:16:14] Ramana James from IAG. Thanks very much for talking with insurance business TV. 

Ramana: [00:16:19] It's a pleasure. Thank you for having me, Danny. 

Daniel: [00:16:21] And you've been watching insurance business TV. Bye for now.