Environmental, Social, and Governance (ESG)

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Crystal globe putting on moss, ESG icon for Environment Social and Governance, World sustainable environment concept.

ESG – are “S” and “G” being overlooked when considering future risk?

By Catherine Lewis, Thomas Morgan & Peter Hardy on 18 July 2023

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.Continue Reading ESG – are “S” and “G” being overlooked when considering future risk?

Climate change litigation in the UK – risks for corporates in the new era of disclosure and transparency

By Thomas Morgan & Daniel Sahraee on 6 April 2023

Recently, climate-related disputes in the UK focused on challenges to government decision-making and policy through the judicial review mechanism. However, the English courts have, to date, made it clear that their role is not to make policy decisions or to decide on government strategy, continuing instead to reaffirm that Parliament has a wide discretion to exercise its powers (see, for example, Client Earth v. BEIS, Plan B Earth, Cox v. Oil and Gas Authority, and R (on the application of Friends of the Earth Ltd and others) v. Heathrow). Climate-related actions in the UK have, therefore, arguably proved less successful than in other jurisdictions (a notable example being the Urgenda decision, in which a Dutch court held that, by failing to reduce emissions, the Dutch government had acted unlawfully).

We are now seeing the first signs of a change of approach, focusing instead on corporate actors as the strategic target for UK-centred climate change litigation. This change is the result, in part, of increased transparency and disclosure requirements placed on corporate entities, which produces more actionable information and gives claimants greater scope to target claims based on embedded international standards and settled climate knowledge. This is the “information paradox”: inadequate disclosure of information may give rise to corporate liability, yet publication of this same data may provide a foot in the door for strategic litigation against corporates. In this article, we explore some of the attendant risks for corporations.Continue Reading Climate change litigation in the UK – risks for corporates in the new era of disclosure and transparency

D&O insurance to counter ESG litigation – new issues for insurers and policyholders

By Kya Coletta & Benjamin Fliegel on 23 March 2022

Strong environmental, social and corporate governance (ESG) business policies are critical to address the fluctuating, unprecedented risks in this changing climate. Any company planning to expand and thrive in the next few decades must evaluate its collective conscientiousness for social and environmental factors, including preparing for the social and market upheavals resulting from greenhouse gas emissions, gender and diversity policies, and shareholder interest in income equality. Implementing forward-looking ESG policies is vital to a modern company’s success, and its retention and management of a socially conscious workforce and investor pool.

Obtaining insurance coverage in this climate of activist shareholders

The evolving ESG landscape requires companies to plan for claims that did not exist just a few years ago. Shareholders are actively requiring boards to be more transparent and responsive to ESG issues, and regulators are enforcing new disclosure requirements. Sometimes disclosure alone is not enough: businesses are scrutinized by shareholders and regulatory entities for underestimating their environmental impact, or over promising their efforts to minimize climate change contributions, known as greenwashing.

Even companies doing their best in ESG governance face the risk of shareholder and regulatory litigation. These risks can be addressed by directors and officers insurance coverage, which generally protects companies, their directors, managers and employees against claims for a “wrongful act.” Unless excluded as a specific type of claim, companies routinely look to their D&O policies to address shareholder claims and defray the costs of regulatory investigations.Continue Reading D&O insurance to counter ESG litigation – new issues for insurers and policyholders

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