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Companies with a captive have higher than average ESG Risk Rating scores

Companies with captives are in a good position to showcase how their existing processes and protocols feed into their ESG risk mitigation and management.

01/06/2023 · 5 minute read

Recognising that a wide array of internal and external stakeholders are basing their decisions on environmental, social, and governance (ESG) factors, Marsh launched its ESG Risk Rating in March 2022. It is a complimentary self-assessment that enables clients to measure their organisation’s ESG performance, understand their ESG risk profiles, and gain access to risk and insurance benefits.

As more companies use the tool, the trends and correlations from the insights given are becoming more evident. We are finding potentially significant relationships in the data relevant to the management and mitigation of risk. For example, in October 2022, we were able to show that organisations with stronger social performance experience better claims performance for workers’ compensation. Now, we are seeing early signs of a positive correlation between companies with captives and their ESG rating – and here we take a deeper dive into this finding.

Captive impact

Many leaders are exploring alternative strategies to finance their risk to counter the higher insurance rates, lack of capacity, and more stringent carrier terms and conditions they are experiencing. One of the most popular is through a captive insurance company.

When we started our analysis our expectation was that companies with captives would have higher ESG scores as they tend to be more proactive in their risk management. We expected this to especially be the case for the ‘G’ component.

Our analysis was based on data from over 100 large companies, being those with a revenue of US$1 billion or more. Our results did find a correlation: Companies with captives had higher average ESG Risk Rating scores than those without. However, we were surprised that the strongest statistical significance was found in the ‘S’ component, specifically within the themes of clients and customers, and employment and wealth generation.

Our findings are outlined below in more detail.

Findings from the dataset

Figure 1: ESG Dimensions

Captive owners show higher median scores across environmental, social, and governance dimensions than non-captive owners.

  • Most statistical significance in Social theme

Note: The Marsh ESG Risk Rating has 19 key themes, tied closely to the World Economic Forum framework for sustainability, Measuring Stakeholder Capitalism (WEF, 2020).

What this means:

Captive owners are more likely to have stronger credentials than non-captive owners when it comes to the  social  dimension of ESG.

Captive owners are more likely to meet the criteria of people-related sustainability standards, such as the following:

  • equitable pay policies
  • robust diversity, equity, and inclusion (DE&I) performance monitoring
  • health, safety, and upskilling of the workforce
  • positively engaging the local communities in which they operate

 This is likely due to captive owners typically having greater collaboration and harmonisation between risk management and human resources (HR), as people-related risks are self-insured via their captive. 

Figure 2: Environmental Themes

At ESG 'theme' level, we find that environmental themes show the least difference in median scores between captive and non-captive owner.

Figure 3: Social Themes | Figure 4: Governance Themes

For Social and Governance Themes, we find median score differences across most Themes between captive and non-captive owners.

  • Most statistical significance found for ‘employment and wealth generation’ and ‘clients and customers’ themes.
  • Tighter distributions and strong median differences for governance themes – particularly ‘governing body’.
What this means:

With regard to employment and wealth generation, captive owners are more likely to have practices in place to control, monitor, and report employee remuneration and turnover by diversity metrics, and be more inclusive in their recruitment practices.

  • Captive owners place greater emphasis on identifying and managing their people risks.

Captive owners are more likely to regularly assess their clients’ and customers’ portfolios against ESG criteria, and to have policies and procedures in place to protect customer data privacy.

  • Captive owners tend to have wider risk awareness in their downstream value chain.

Captive owners are more likely to score higher on questions pertaining to their highest governance body construct, and incorporation of ESG issues into it.

  • While the statistical significance in this theme is not as strong as that of the social theme, we believe this to be a key differentiating characteristic of captive owners.

Key takeaways

Companies with captives are in a good position to showcase how their existing processes and protocols feed into their ESG risk mitigation and management. Our ESG Risk Rating tool has been valuable for helping our clients to confidentially assess their ESG profile against international best practices and communicate this to their stakeholders.

Through insight garnered from our rating tool, we have found that ESG performance and risk appear to be intrinsically linked across many different dimensions. The ESG Risk Rating self-assessment is providing the missing link to enable the discovery of correlations and analysis of trends. This allows clients to robustly differentiate themselves in an increasingly complex risk landscape.

Methodology

  • Since March 2022, our risk rating dataset has grown to more than 500 completions, meaning we had the dataset to now test this hypothesis.
  • For this analysis, a list of companies with +US$1 billion revenue that had completed the ESG Risk Rating was used. This revenue threshold usually meets the eligibility criteria necessary for considering captives as a risk transfer mechanism.
  • These companies were matched against companies with a captive, whether Marsh managed the captive or not.
  • Our correlation analyses[1] was performed against these two groups.

 

 

[1] Our correlation analyses include testing for variance and normal distribution, and then p-value non-parametric tests (Mann-Whitney) to arrive at ESG dimensions with >95% confidence of statistical significance in correlation.

 

ESG Risk Rating

An assessment that measures your organisation’s environmental, social, and governance performance.

Find out more

Our people

To know more speak to our Captive teams.

Ellen Charnley

Ellen Charnley

President, Marsh Captive Solutions

  • United States

Lorraine Stack

Lorraine Stack

Risk Management Leader, Europe

  • Ireland

Michael Serricchio

Michael Serricchio

Americas Sales and Consulting Leader, Marsh Captive Solutions

  • United States