How insurance companies can support the capitals of integrated reporting - Old Mutual at #findaba16
Old Mutual experts explained how insurers can help companies to exchange the uncertainty of a long-term liability for the certainty of an insurance premium.
By Georgi Guedes
Speaking at the Finance Indaba Africa on 13 October 2016, Robert Lewenson, governance and engagement manager at Old Mutual, pointed out that there is an interconnection between government, the environment and society and that all these big ticket items interconnect in the ESG (environmental, social and governance) space.
"These are the three big pillars in terms of responsible investment for the long term. The economic system has to be seen in a macro-thematic way that encompasses both the biophysical and the socio-political systems. Anything that happens in one of these systems affects the other."
Because of this, responsible investment has become a global standard. Asset consultants represent their clients' interests, and have to consider the broader implications of their investment advice.
"Old Mutual is a signatory to a code that says we will consider all matters in our investment decision-making process," Robert said. "We report every year on how we apply the principles."
He then presented the diagram known as "The Octopus", which details the six capitals of integrated reporting: financial, manufactured, intellectual, human, social and relationship, and natural.
Then Elna Erwee, the head of sales to large corporates, took over to explain how Old Mutual implements this in practice. "So if we talk about integrated reporting, we can think about a world in the past where companies predominantly focused on the financial reporting side, but the developing thing is how do we incorporate all of these six capitals into reporting - and in fact into the business model. And if that's the case, do we now have to reinvent the way we do business altogether."
She continued with the good news that Old Mutual doesn't believe that this is necessarily so
"But it is going to challenge us quite a bit in terms of how we interact with that business model. We have to relook at our notion of sustainability in the short term and the long term - not just in the going concern type of context but also in the context of a brave new world."
Looking at the integrated reporting model, Old Mutual focuses particularly on the capitals of financial, human, natural and social. "The actions we take can either enhance these capitals or diminish them," Elna said.
In terms of financial capital, Old Mutual considers economies of scale, providing companies with access to institutional fees rather than retail ones so that employees can access benefits. Another area that they support is the provision of stable, predictable outcomes for long-term liabilities by putting measures in place to mitigate or manage risks. In this way, they help companies to ensure the mental, emotional and financial well-being of their most valuable asset - their employees.
In the environmental capital space, Old Mutual helps companies to look at their natural impact and how to put an asset in place, considering the movement of liability over time, to deal with the potential liabilities.
And finally, the social element. "Long gone are the days when companies could go about their daily lives, making their profit without considering the social impact," said Elna.
She pointed out that in terms of post-retirement employee benefits, which are by their very nature highly risky because they deal with a risk that might come to bear twenty to fifty years on. This, she said, is the business of insurance companies - allowing their clients to offload massive liability, creating value into the company.
"Risk gets exchanged for the certainty of an insurance premium," she explained.
She concluded, "What I would like to leave you with is that in a world where millennials are our future customers and investors, looking beyond profit, we are looking after the big issues. We want to help companies move from unpredictability, instability and high-risk volatility to a balance sheet with stability and certainty, and we want to reduce your non-core risks or mitigate them to an extent that you feel comfortable. I've been in the industry for a while and what I've seen is that it takes bold leadership and bold decision making to address some of these issues. So I challenge you to step up and make those bold decisions."