ESG “Environmental, Social and Governance” first popularized in the mid-2000s – is now firmly on boards’ lists of hot topics. Following the 2015 Paris Agreement and the annual COP climate change conferences that have continued to take place since, the “E” has increasingly taken center stage. However, this focus creates the risk that not all elements of this broad acronym get the attention they deserve.
While climate change and environmental issues are (rightly) high on the agenda of all corporations as governments and individuals take steps to mitigate the impact of climate change, corporations should not lose sight of their obligations and consequent risks under the Social and Governance elements of ESG.
An awareness of climate change is important, but policyholders should also be taking steps now to mitigate risks in the areas of Social and Governance. In an age of heightened scrutiny by regulators and on the public stage, policyholders should be aware of developing risks and how to protect against them.
This is a rapidly developing area, and insurers will be under pressure to keep up with the range of judicial decisions and regulatory intervention, and the potential implications for coverage under liability policies. We expect to see insurers probe policyholders at renewal to understand their assessment of ESG-related risk. Liability policies, particularly D&O, continue to see increased claims, but pricing remains fairly low. With capacity increasing and prices attractive, policyholders and their broking teams will be looking to maximize the limits purchased. At the same time, it is generally accepted that ESG claims risk is on the rise. This tension means that we should expect significant scrutiny of policies, business practices, and procedures at renewal. Should current trends continue, we may also see a tightening of wording, the introduction of new exclusions, or even decisions not to underwrite certain risks.