Sustainable development was first introduced in 1987 as ‘meeting the needs of the present without compromising the ability of future generations to meet their own needs’ (UN Brundtland Commission). A vast array of current global economic, ecological, and social challenges necessitates the inclusion of sustainability in risk management. This should be a critical component of ERM strategies which considers environmental and social performance in addition to a corporation’s financial aspect as the three bottom lines (Anderson, 2005). 

In June 2012, the Principles for Sustainable Insurance (PSI) were launched at Rio+20 to serve as guidelines for managing Environmental, Social and Governance (ESG) risks and encourage active participation from the insurance industry in response to global challenges.  These principles—if practiced by corporations—have the power to ameliorate such problems as climate change, food crises, and economic shocks while providing opportunities to foster competitive advantages. Adoption of the PSI will largely impact the actuarial profession with financial, regulatory and rating agency implications.

This presentation will discuss the benefits, challenges and risks associated with embedding the PSI into an ERM framework. It will provide practical guidelines to incorporate sustainability into the four-step ERM process by Segal (2011): risk identification, risk quantification, risk decision making and risk messaging.

Since climate change is often considered as the most serious threat to global society, examples will be provided to focus on (re)insurance product innovation under the proposed sustainable ERM process as it relates to measures and reactions to climate change. This section will discuss current practices used by leading (re)insurers, including various public-private initiatives, to cover weather-related extreme events.

Lastly, global problems require collaboration among diverse stakeholders. The author would like to advocate the involvement of actuaries in non-traditional fields and use of actuarial expertise in various UN initiatives, like the PSI.