Business imperatives: ESG and sustainability captives

Air Date: 06/07/23
Recording Date: 4/27/23

Dawn Hiestand, Executive Vice President and Head of Group Captives, Zurich North America and Lisa Leftwich, Head of Sustainability Services, Zurich Resilient Solutions in North America discuss the influence a business can have by promoting sustainability through Captive Solutions and the benefits of the Group Captive structure to meet the expectations of shareholders, employees and customers for commitment to sustainability.

Guests:

Dawn Hiestand
Executive Vice President and Head of Group Captives
Zurich North America

Dawn Hiestand serves as Executive Vice President and Head of Group Captives for Zurich North America. Dawn is responsible for the overall underwriting strategy and operational management of Zurich North America’s Group Captives insurance business, which includes member-owned, agency and fronted captives. Most recently Dawn served as the Senior Vice President and Chief Operations Officer for the Direct Markets business unit. Direct Markets is focused on providing finance and insurance solutions for automotive dealers and their customers. In this role, key accountabilities involved setting and aligning on the operational strategy and business plans with the head of the business unit and ensuring the integrity of the business operating model and associated infrastructure.

Lisa Leftwich
Head of Sustainability Services, North America
Zurich Resilience Solutions

Zurich Resilience Solutions Head of Sustainability Services, Lisa Leftwich, effective March 1. Is responsible for profitable growth for all ESG (Environmental, Social and Governance) services across Zurich’s business. She has direct oversight of P&L goals and responsibilities while managing a team that provides Environmental Sustainability Services (including Carbon Advisory), Business Resilience Services (including Business Continuity Planning and Supply Chain Management) and Workplace DEI Services (Diversity, Equity & Inclusion).

Host:

Stephani Gordon
Future of Risk Podcast Host

Stephani Gordon finds and shares stories by asking questions that connect people with ideas to pique curiosity and broaden awareness and create communities. Fondly considered a compassionate interrogator, she has had roles coaching and supporting executive communications for the CEOs of Zurich North America and Zurich Canada, has lead C-suite video production and has connected employees with corporate strategy through storytelling and engagement. Stephani is currently one of the hosts of Zurich North America’s Future of Risk podcast. She unabashedly spends too much time on TikTok in the guise of “anthropological study.”

Episode transcript:

Stephani Gordon: The business world is famous for buzzwords and jargon and for jumping on the flavor of the day bandwagon when a new topic makes its rounds in the media or the executive speaking circuit. Sustainability could easily become one of those topics if it hasn't already. My name's Stephani Gordon. I'm one of the co-hosts for Zurich North America's Future of Risk Podcasts.

The definition of sustainability is fuzzy and it's inconsistent. For some people it's synonymous with climate change, others give it a broader meaning. So, we want to explore this topic from the perspective of one company, Zurich Insurance, and what it means for a profit driven business entity to make a commitment to sustainability. I'm joined today by Dawn Hiestand, Senior Vice President and Head of Captives and Lisa Leftwich, Head of Sustainability Services within Zurich Resilient Solutions in North America. So, ladies, thank you both so much for being here.

Lisa Leftwich: Thank you, Stephani.

Dawn Hiestand: Thank you, Stephani.

Gordon: Lisa, I want to start with a question about why a company like Zurich who's in the business to make a profit for its shareholders, in addition to serving our purpose, obviously as an insurance provider, would make a commitment to sustainability as a cornerstone of its business? Can you talk a little bit about that? And, maybe you can work in a definition of the word as Zurich uses it while you go?

Leftwich: Absolutely. So, we are hearing more and more about ESG, right? And this used to be something that was a “nice to have” for companies, but we are now hearing about this as a business imperative. Shareholders are asking for it, customers are asking for it, employees are asking for it. And so, it's really become mission critical for companies to understand and live into the ESG space. Let's step back to your point about what does ESG even mean?

Gordon: Perfect. Yeah.

Leftwich: Yes, ESG is an acronym that stands for Environmental, Social and Governance and this speaks to making the world a better place, essentially. One reason I appreciate Zurich as an employer is that our purpose statement is “create a brighter future together.” And that means embracing these ESG values and having a positive impact with the influence that we are such a large and successful company.

Gordon: So, when you talk about for the better of society or the world or employees, etc.; could we consider this topic of sustainability, kind of like the latest evolution of corporate responsibility? Which maybe historically we thought about, you know, the eradication of child labor or worker safety protection or even environmental pollution, you know, when that movement started in the 1970s?

Leftwich: Yes, absolutely. So, there has been this movement for companies to be more socially impactful. You mentioned some great examples and we're seeing that continue. Where that is evolving to though is, stakeholders want to see companies make this a part of how they operate. This is no longer an extracurricular activity. There are calls for companies to make this core to their business. This year, actually, we're expecting guidelines from the SEC requirements, that would require publicly traded companies to make ESG disclosures on the climate side, but on the social side as well. One, quantifying their impacts. Two, also looking at what is their plan to address risks in those areas. So, ESG has definitely moved out from a “nice to have” to a business requirement.

Gordon: You mentioned shareholders, Lisa, but I think with some of the reading I've done, this is also becoming a factor in whether or not people consider an employer. Is it a company they want to join, you know, as a worker and do business with. This is a factor, as well as I think increasingly, we see customers are interested in a company's position on sustainability or some of the other ESG factors that you mentioned, right?

Leftwich: Absolutely, I'm at a conference at the moment and one of the comments made was there are some definite generational differences that we're seeing play out, right? As you look at millennials and our newer folks who are coming into the workplace, these types of issues are very important to them. They are voting with their feet in terms of the companies that they will work for and their expectations as well as the brands that they will patronize, right? Patagonia is one that is held up as a great example of a company that's made a statement with their brand. They've made commitments and they have a core customer base that follows them because of that. Ben and Jerry's is another one that instead of trying to walk a fine line, has made some commitments actually before it became popular and then they're celebrated for it. So absolutely, Stephani, we are definitely seeing this become a more pressing consideration in our society overall.

Gordon: And I think retail kind of beat us to it. We've seen a lot of that in the retail space, but now it's definitely moving into the financial services sector and insurance as well. So, thank you, Lisa, for your thoughts. Both you and Dawn are fairly senior leaders in the company in North America. So, from that perspective, could you talk a little bit about some of the actions that Zurich as a company … again, we talk about that financial services is catching up on this topic. What are some of the things that Zurich is doing to walk the talk, both in the U.S. and maybe abroad?

Hiestand: So Lisa, if you want to, I could go ahead and get started on just a few things that the organization is actually doing. I think that a few hit particularly close to home. So, I think when we think about the actions that Zurich is taking, it is along the very broad spectrum of what we're talking about in the ESG space and that Lisa took us through in terms of what those things actually mean. But I think that there are commitments that we're making in the areas of data. We want to make sure that we are honoring our customers trust that they place in us, particularly with transparency about how we're going to use their personal data. Zurich North America in particular, and the Z Zurich Foundation and the Resilient Cities Networks, we're working together to address climate risks. And one topic that is particularly relevant is also the social inequalities that we see through the North America Climate Resiliency Program. Then finally, one thing that I am particularly interested in and focused on, and [where] I think Zurich has really stepped up, is really about the investments that they're making in the sustainability space and the strategy that we have around it. And the work that we're doing specifically with our customers to support them, and to really influence their own outlook on sustainability.

Leftwich: Yeah, I agree with that, Dawn. I think many companies are taking action to make their own operations sustainable. So, you look at, for example, eliminating single-use plastic or encouraging volunteerism within their employees. I think it's, again using our influence to drive positive change. That's what we are doing as we look to really partner with our customers and helping them make their own journeys as well. So that includes launching services like on the mass timber front, right? That was an emerging product in the construction space. The fact that we now insure that — so by ensuring it, making it more feasible for companies to embrace it, providing services that help to stand up that service. And there's other examples too, right, as you look at, for example, consulting with different types of companies to help them reduce their carbon footprint and being an advisor and sharing best practices. So that's definitely an area I think [where] we've done a lot of great work and [we’re] excited to do some more.

Hiestand: Yeah, I think the commitment that we've made just as a Zurich organization, I think we not only embedded it within our own operations and actions, but Lisa, to your point, we really are now transitioning and really enhancing our involvement in meeting customers where they are and also then helping them on their journey going forward. So, [we’ve] really seen an evolution with where Zurich is in this particular space.

Gordon: So, those are fantastic examples. Thank you both. So, it's not just the commitment that Zurich's making on the ground, you know, like moving our fleet for instance to hybrid cars, those kinds of tangible in-house things. But I really like the concept of using our influence to help our customers who want to move along their own sustainable path with some of our insights — Lisa, you mentioned the mass timber product, things like that — so, in terms of the work we're doing with our customers to help support them along with our own commitment to sustainable investing, for instance — it's a whole other area we didn't even touch on yet — this work with the customer seems pretty meaningful to move the needle. Can you talk, Dawn, specifically about the creation of this sustainability captive? Maybe to start you can tell us what that means?

Hiestand: Yeah, I'd be happy to. So, Zurich recently announced the formation of a new group captive. Which brought together member companies or customers, if you will, with a common interest in advancing their sustainability business practices. And really this captive, it has sustainability at its core. It is a first of its kind captive, which it really is focused on creating a brighter future, which nicely aligns with where Zurich is also from a value proposition [lens], but also doing that through a sustainability lens. The creation of this captive was a little bit of a reversal in the usual way that we do develop group captives and how they're formed. And what I mean by that is that, rather than having the starting members in mind first, the effort really started with the creation of a group captive that we did in conjunction with one of our distribution partners. And we proceeded with the basis of, “If you build it they will come.” And so, out of that we started and launched a sustainability captive called Impact Re Limited, which will really still continue to provide the risk optimization benefits of a member-owned Zurich-fronted captive. Some of those things include predictability in pricing, members are active in the participation of risk within that captive, and they also have the benefits of investment returns should their loss ratio perform better than what they had originally planned for. They're going to do all of this while supporting the members individual sustainability and ESG objectives. But members will also have the benefit of access to typical lines of coverage that we would find in a group captive model. Particularly work comp coverage, auto liability coverage, auto property damage coverage, and then also general liability coverage. And the members will have the ability to leverage the captive member network, not only for risk-sharing, but improving in areas of sustainability in climate. So, what is really unique additionally about this sustainability captive is that there will be the inclusion of a sustainability committee that'll be integrated. This committee will be accountable for monitoring the progress and commitments that the captive members have made collectively and individually. And the hope is that they will find ways to continue to integrate sustainability metrics and operations on a go-forward basis, even in the core operation of the captive itself.

Gordon: That is very cool, Dawn. And I love the idea that usually you start a captive [that] has something in common … they're all veterinarians or they're all another type of group that comes together, [where] this is really based on the thematic concept of sustainability. And I almost got the impression while you were talking, it's sort of like a support group, right?

Hiestand: Yeah, you're right.

Gordon: You're supporting the members individually, but they're also supporting each other and then using the resources, the expertise that Zurich brings in risk, etc., to help them along their journey, right?

Hiestand: Yes, absolutely. And we actually like the concept of the diversity of the different industry sectors that will make up this captive. Because to your point, Stephani, it's a support group, right? And industries have the ability to learn from each other, and they have the ability to share those best practices. So, we really believe that this structure is going to be beneficial for all the members that are in it.

Gordon: Another one of Zurich's core values is diversity. And we value the diversity of thought and experience, and we believe that brings better outcomes in problem solving and innovation. And I can see how what you're building potentially has the possibility of doing that same thing. Because, like you just mentioned, you're going to bring a lot of diverse organizations that wouldn't share the usual commonalities of a captive to bring their own unique perspectives to this topic. So, besides arguably being what we think is the right thing to do from a sustainability commitment perspective, what kind of company might want to join this effort? Is this good for business?

Hiestand: Yeah, I really do believe that this is good for business. It will build a little bit on what Lisa had started talking about earlier and wanted to cover [in] a couple of these points. But we're really talking about being in the here and now and sustainability truly becoming a business imperative. Companies will need to start looking at what some of these commitments are and, you know, again, this captive is at least an option to be able to get the support that companies need in order to be able to drive this forward. But what are some of the things that we think, make this good for business? So, first and foremost, the prospective members for the captive really will receive a sustainability assessment of their carbon footprint and energy consumption, so that they can get an idea, basically on where they are. And then, they can start to map out where they want to go from a company perspective. Building off of that, of course, is that really part of the research before even launching the sustainability captive indicated that companies that have a sustainability focus tend to perform better when it comes to risk management practices and also loss containment — when they actually experience a claim, in being able to deal with it. So, aside from these inherent benefits — most that are attributable to the benefits that align with just a group captive structure specifically — we do believe that the companies that focus on sustainability can equate to real bottom-line impacts. These bottom-line realizations can impact operational costs, business continuity, buying power, reputation —which Lisa had also kind of touched upon before — and more, just not in the long-distance future, but really that impact's going to be in the here and now. And I do say this, I know that some of these things may be difficult to quantify today, but we do believe that employees are looking for companies that are actively looking for ways to positively impact the environment. And really at the heart of it is just being good corporate citizens. So going beyond profits and loss and really making tangible change to the community and the society at large. This equates to talent attraction and retention, which has real savings impact. And then I would say also — and Lisa did touch upon this — I absolutely agree that consumers tend to buy from companies that they feel are aligned with their own personal values and commitments … companies that can illustrate that either their product and services are dedicated to a more sustainable future or protecting the environment, or where sustainability just happens to be embedded in their day-to-day operations. So, think end-to-end supply chain, if you will, companies will see top-line growth as a result.

Gordon: And would it be fair to say, Dawn, and it may be too early in the life of this captive, but I would imagine — again, going back to the diversity of its membership — would it be fair to say that the companies who've chosen to join this captive could also end up being leaders in their industry in this [effort] because they're so embedded in this concept and they're learning from other peers and in other industries as it were?

Hiestand: Yes, Stephani, I would say the answer to that is yes. And in most instances, these are considered best-in-class customers that are entering these group captives regardless. And so now you bring in that sustainability component and now you do have either customers who are known to be best-in-class and have a brand and reputation already associated with them, or you have members who are beginning that journey and will in fact, through the structure that this group captive provides, get there as well. So, there's real potential for those companies to also then become known as best-in-class in this area.

Gordon: It sounds like a lot of benefits in a really forward-thinking concept that's admirable. So, Lisa, you're responsible for Zurich's profitable growth with the ESG services that the company provides. I assume some of those were developed specifically for members of this new sustainability [captive]? Yes? No?

Leftwich: Actually, no, but the great thing is that we were able to take those offerings and tailor them for this particular captive. I think Dawn may have touched on the fact that for the first — and correct me Dawn — but I believe the first 100 members of the captive will receive a scope one or two emissions analysis, that we're providing for them.

Hiestand: Yes, that's right.

Leftwich: So again, a great capability in that essentially what that is … it assesses what the current carbon footprint is for your immediate operation and energy sources. So again, a great step in the right direction. And here's the other thing: we're talking about reputational benefits. We're talking about it's the right thing to do. Keep in mind there are local regulations that are being established to govern and drive action around some of this. In New York, there's Regulation 97, which governs the decarbonization of new buildings that are over 50,000 square feet. There's California. California's always in the lead, right? Looking to this year, it's expected they will pass legislation requiring companies with revenues over one billion a year to report their emissions and have them verified. So yes, this is the right thing to do. Yes, this is something that, shareholders will appreciate, but these companies in this captive are also getting a jumpstart on what we see as the new normal of companies needing to lean into this and be responsible and demonstrate that commitment.

Gordon: So really, we see ourselves just at the cutting edge of what we expect to become a much larger trend over time.

Leftwich: Absolutely.

Gordon: How many members are currently in the captive?

Hiestand: So, I'm happy to say that we have three founding members of the captive, with several more prospective customers that are in the pipeline. So, it's off and running and we're looking forward to seeing how the captive grows over the next several years and certainly makes progress on their sustainability goals.

Gordon: As you've been out talking to prospects and customers about this, what's kind of the reaction that you're getting? What's some of the feedback on the concept? Is it resonating? Are people intrigued by it? Is there a reluctance?

Hiestand: So, I would say the reaction is this is a great proposition that not only brings the benefits of the group captive structure and a lot of those benefits, but also, an ability to recognize people's commitment and customers' commitments to sustainability. It's been a really overwhelmingly positive experience that I've had in the conversations. Some actually also say, “Well, it's about time that we get an opportunity to get recognized” for some things that really some of these companies have paved the way [on] and this has just been the way that they've done business. And now they have the ability to gain the benefits of an insurance structure that will cover their products that they need to as a company to do business, but then also have the ability to continue getting services that will help them continue with the positive impacts that they've already been having, literally for years before entering this structure.

Gordon: So, far from being jargon or buzzword or the flavor of the month. we really see this as the future for business, right?

Hiestand: Yeah, absolutely. I do.

Leftwich: I think this is also a great example of how sustainability is not just a great thing to do, but it's a smart business move. So, with Zurich, we have a really strong Group Captives offering. And so, by joining the sustainability captive, customers really get to take advantage of that strong solution that Dawn and her team have developed and brought to market. So again, it's already a great, capability and then the sustainability is just the icing on the cake to make a really good thing even better, leaning into being forward-minded, thinking about your stakeholders, and then getting ready for these developments that we see that are coming.

Gordon: Fantastic. Well, Dawn, Lisa, thank you both so much for the conversation today. Congratulations on the important work that you're doing. [I] wish you both continued success, and thanks.

Hiestand: Thank you, Stephani. Appreciate it.

Leftwich: Thank you, Stephani.

Gordon: And to our listeners, thanks for joining Zurich North America's Future of Risk podcast, and we'll look forward to talking with you again soon.