Captives Identified as Key Enablers of ESG Integration, FERMA Report Finds

According to the Federation of European Risk Management Associations (FERMA) report titled ESG—Toolbox for Captives, captive insurance companies can support the integration of environmental, social, and governance (ESG) objectives into insurance and risk financing programs. While their primary purpose remains risk management and financing, the report outlines practical applications for embedding ESG considerations into underwriting, claims, investments, and data processes.

The report notes that ESG principles contribute to organizational resilience and long-term value creation and states that captives can play a role by supporting sustainability goals in day-to-day (re)insurance activities. FERMA said the toolbox is not a rulebook but rather a source of ideas intended to spark discussion and help owners tailor approaches to their organizations.

Environmental Applications for Captive Insurers

According to the report, captives may embed environmental key performance indicators (KPIs) into underwriting to strengthen climate, resource, and pollution exposure evaluation. Examples cited include using metrics such as greenhouse gas emissions, energy intensity, water use, waste recycling rates, pollution prevention controls, and renewable energy adoption to influence pricing or coverage terms.

The report also notes that captive insurers can directly support environmental programs through investment strategies, including funding renewable energy projects, financing climate risk assessments, or allocating capital to energy efficiency improvements. In addition, the toolbox references "build-back-better" claims approaches, such as allowing upgrades to energy efficient insulation, lighting, HVAC systems, low-flow water fixtures, or sustainable building materials after a loss.

FERMA stated that captives may help address insurance gaps related to emerging green technologies by absorbing transition-related risks where commercial markets lack data or capacity, and by contributing to the development of insurance solutions through data gathering, customized underwriting, and higher retention levels.

Social Impact Through Captive Insurance Structures

Per the report, captives can contribute to social objectives by enhancing employee benefits and supporting health and well-being initiatives. Examples include supplementing traditional coverage with mental health support, resilience programs, family benefits, and financial wellness solutions, as well as standardizing coverage across geographies to promote equity.

The report explains that captives can embed social indicators into underwriting and pricing—including injury rates, employee turnover, gender representation, training and development levels, and labor-related litigation metrics—to encourage consistent progress on human capital goals.

The report also identifies opportunities to use aggregated claims data to inform prevention efforts, such as targeted health screenings, counseling services, disease-management programs, and vaccination initiatives. According to FERMA, some captives may also support micro-insurance or community assistance mechanisms, including disaster relief funding, when authorized to do so.

Governance Strengthening Through Captives

According to the report, the existence of a licensed captive reflects structured governance and regulatory oversight. The toolbox highlights governance actions such as selecting domiciles with strong supervisory frameworks, aligning board composition with fit-and-proper requirements, incorporating independent directors, and including ESG topics on board agendas.

FERMA noted that captive insurers can also strengthen groupwide governance by collecting and analyzing claims and exposure data, sharing lessons learned from incidents, benchmarking performance across business units, and supporting implementation of risk management information systems. The report states that captives may also fund loss-prevention efforts and reinforce transparency and accountability within insurance decision-making.

A Framework to Guide Practical ESG Integration

Per FERMA, the toolbox was developed to help captive owners translate ESG objectives into practical execution across underwriting, claims, investment, and data functions without imposing standards or compliance requirements. The report emphasizes flexibility and encourages experimentation tailored to individual corporate strategies.

FERMA stated that the initiative is designed to support knowledge sharing and inspire incremental contributions toward ESG objectives as organizations expand sustainability practices in their insurance and risk financing frameworks.