The subjectiveness of risk, whether of actual certainty or experiential awareness, warrants interdisciplinary perspective and judgments before organizations address issues such as climate change. Climate-related risks are often subject to different perceptions and interpretations serving to determine the materiality of disconnect between risk and sustainability best practices.
The emergence of environmental, social, and governance (ESG) strategies raise concerns about the following risk management factors:
Physical risk (or pure risk) exposure to natural causes of uncontrollable disasters
Transition risk exposure toward zero-carbon emission economies
Resiliency factors (resource planning, adaptability, responsiveness, etc.)
So far, the cognitive dissonance occurring among financial risk managers appear representative of outdated analysis and unrefined communications, given the increased importance of ESG activity to rating systems.
“As ESG information is increasingly relevant to insurance companies’ decision-making, AM Best has refined its Best’s Credit Rating Methodology (BCRM) to enhance transparency as to how it contemplates ESG risks as part of the credit rating analysis. AM Best will continue addressing climate risk, innovation and enterprise risk management in the assignment of a rating".