Policyholders' Subjective Beliefs: Approaching New Drivers of Insurance ESG Reputational Risk

48 Pages Posted: 13 Apr 2023

See all articles by Giovanna Apicella

Giovanna Apicella

University of Udine

Maria Carannante

University of Salerno

Valeria D'Amato

University of Salerno, ITALY

Date Written: March 25, 2023

Abstract

Firms, insurance companies, pension funds, and broadly speaking the international community focus already their engagement activities on environmental, social and governance (ESG) issues since it can create long-term shareholder value, by determining the future performance of markets. Indeed ESG criteria adoption has multiple positive dimensions and outcomes, meanwhile, the analysis of the risks related to sustainability is already uncommon. In this paper, we provide a formal theoretical valuation system on ESG reputation, i.e., the reputation or the gain in confidence produced by possession of a positive reputation compared to the lack of one when the ESG criteria are integrated into the business analysis. In particular, we model the ESG reputational risk by means of the paradigms of behavioural finance. We define the ESG reputational risk by subjective probabilities framed in a probability function based on preferences set of the potential trustees, such as actors or objects in whom others may seek to place trust. Furthermore, we compute the sustainability premium or discount, which measures the economic impact of the good or bad reputation due to ESG investments. One of the approach's main features is the flexibility coming from the opportunity to assign a given analytical form of the utility function describing the trustor’s preferences. From an operational point of view, our results should encourage the firms and other institutions to accurately evaluate the reputational risks related to ESG investments.

Keywords: ESG, reputational risks, subjective probabilities

JEL Classification: G11, G22, G30, G41, M14, Q01

Suggested Citation

Apicella, Giovanna and Carannante, Maria and D'Amato, Valeria, Policyholders' Subjective Beliefs: Approaching New Drivers of Insurance ESG Reputational Risk (March 25, 2023). Available at SSRN: https://ssrn.com/abstract=4400019 or http://dx.doi.org/10.2139/ssrn.4400019

Giovanna Apicella (Contact Author)

University of Udine ( email )

Department of Economics and Statistics
Via Tomadini 30/A
Udine, 33100
Italy

Maria Carannante

University of Salerno ( email )

Via Giovanni Paolo II, 132
Fisciano, Salerno 84084
Italy

Valeria D'Amato

University of Salerno, ITALY ( email )

Via Giovanni Paolo II, 132
Fisciano, Salerno 84084
Italy

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