ESG factors impacting on D&O policies
4 July 2022
Increased attention on environmental, social, and governance (ESG) factors is having an impact on directors and officers (D&O) insurance policies.
ESG criteria can help investors avoid investment losses when companies engaged in risky or unethical practices are held accountable.
Issues including climate change, sustainable natural resources, diversity and political spending has led to more information being requested on a business’s current and future ESG strategies with reputational risk a key factor.
While the impact on the environment – including company supply chains -has been a key focus, social and governance concerns are becoming increasingly important with a greater emphasis placed on board and management diversity.
According to the most recent report from US SIF Foundation - the Forum for Sustainable and Responsible Investment - the total US-domiciled assets under management using sustainable investing strategies grew from Euros 11.4 trillion ($12.0 trillion) at the start of 2018 to Euros ( 16.2 ($17.1 trillion) at the start of 2020, an increase of 42 per-cent.
Eric Jesse, partner in Lowenstein Sandler's Insurance Recovery Group highlighted the importance of ensuring compliance with ESG and made it clear companies that embrace a diverse board show ESG is taken seriously.
He said: “Companies should expect D&O insurers to really probe their ESG efforts, and insurers are also going to want to understand how companies intend to comply with regulations that govern ESG-related disclosures.
“Insurers may even try to avoid coverage for these ESG-related lawsuits by claiming that companies made misrepresentations during the underwriting process or on their application with respect to ESG.
“Companies should be prepared to answer not only questions about their ESG efforts, but they should be prepared to substantiate them. The executive team can send clear messages that they take ESG seriously, but they should be prepared to explain how they do so in concrete ways. Doing this will make the company a more attractive risk.”
W Denis Europe offer high limits of indemnity to protect businesses against various types of class actions. Policies are available for General Public and Product Liability, Product Recall, Medical Malpractice, Professional Indemnity, Management / Directors & Officers Liability and Environmental Liability Insurance etc.