While ESG has become a common term within financial services in recent years, most people take it as short hand for environmental action, or other steps to limit climate change. Of course, that’s just the “E” element, while the S and the G sometimes take a back seat.

However, while the focus may be on what the industry can do to address its impact on the environment, there is still much to be done to consider the impact of our actions on society. In what ways are we good corporate citizens of the world, and how are we ensuring that our clients and counterparties are acting in ways that are in line with our expectations and principles.

This is a growing question and one which regulators are also advancing quickly. So what is happening with the Social element of ESG and what are the implications for credit insurance and surety?

When it comes to regulatory measures related to ESG principles, much of the current focus is on transparency and reporting, as well as ensuring governance procedures are in place to monitor and react to situations. When it comes to social impact questions, such rules may be strengthened in the coming years with clearer enforcement protocols and heavier punishments.

For example, the European Commission announced on 14 September the launch of a “proposal for a regulation on prohibiting products made with forced labour on the Union market”. This proposal seeks to address the international community’s stated goal under the UN Sustainable Development Goals (Goal 8.7) to eradicate forced labour by 2030. While this proposal relates specifically to the import or sale of products into the EU and is silent on financing or insuring such activities, it can be assumed to have implications for these activities too – directly and indirectly. It is also likely that such activities will be covered under other new laws or regulations if they are not already covered under existing anti-slavery, KYC and other relevant legislation.

Of particular note under this proposed regulation is that products which are deemed to have been the product of forced labour can be prohibited from placement in EU markets, and that orders may be given such that “products are destroyed, rendered inoperable, or otherwise disposed of” if found to have involved forced labour.

The full implications for the sector are unclear, including how this may be formally connected to existing regulation or legislation directly applying to banks and insurers. However, clearly under such circumstances there is a clear need for insurers to be employing their own due diligence procedures to identify potential breaches while also insisting on strong measures from policyholders for further down supply chains.

And there is strong justification for the growing alarm around forced labour and modern slavery. The International Labour Organisation estimates that 50 million people around the world fall under the subjugation to modern slavery. The ILO highlights not only the current scale of this crisis, but that it is a growing one. Their estimates also show that 10 million more people are in this predicament than in 2016 and that women and children remain disproportionately impacted.

While these facts are surely concerning to most normal people, the question may arise, “Well, how does this relate to my work?”. The truth is that it can touch on supply chains, trade and many other parts of the global economy ICISA members provide services too. In many cases, it may not seem obvious and can be hidden deeply behind many layers, but there is a growing acknowledgement that there is a responsibility on financial services firms to do their due diligence on such matters.

Strong punishments can be expected from enforcement authorities over breaches, but will also result in significant reputational damage too. Ultimately, credit insurers and sureties wish to do the right thing for their clients and for society in general by delivering their services. Further clarification of the impact of proposed regulations on insurers and other service providers would be beneficial and create greater certainty.

In particular, ICISA will continue to monitor developments to see where insurance regulators may proceed on these topics next. While greater details are needed to ensure compliance, as well as the success of these proposals, their overall aim is commendable and one which ICISA stands behind firmly.