How Far Would Your Business Go to Fight Climate Change?

How Far Would Your Business Go to Fight Climate Change?

US outdoor clothing retailer Patagonia made headlines when the owner Yvon Chouinard announced he was giving his company away to fight climate change. ‘Earth is now our only shareholder’ was the poignant statement published on the company’s website. Long known for its ethical standpoint on the environment and sustainability with initiatives like taking back old Patagonia garments for recycling and using organically grown cotton from Fair Trade farmers in its clothes, Patagonia continues to wear its company values on its recycled cotton sleeves. Their website is a case study in how to communicate as a purpose driven business and is worth reading even if you don’t buy their clothes.

The PR impact of this particular story, and the exponential rise in brand awareness this will have created for Patagonia, could suggest that a unique ESG standpoint like this is nothing but good for business. The company’s employees will undoubtedly be feeling proud to be part of a community that makes a real positive difference.

ESG topping the agenda

Environmental and social governance (ESG) has been at the top of the agenda for many companies for over a decade and continues to gain momentum. In the UK, improving the air that we breathe has never been such a focussed goal, with the government aiming to decarbonise the economy to meet our net zero status by 2050. Net zero buildings, electric vehicles, a green supply chain, health and well-being programmes for a diverse workforce and investing in improving local community are just a handful of the things that may come to mind when considering ESG in business. It’s the reporting on the initiatives that can cause issues however, as if companies don’t live up to their promises, litigation can come knocking at the office door.

5 ESG propositions from well-known brands

There have been numerous reports about how ESG metrics influence buying decisions, particularly amongst younger consumers. It is only right that those companies making pledges and doing the right thing present their initiatives for the world to see. Here are five examples from well-known brands in different industries:

  1. Pret a Manger
  2. JCB
  3. Barclays
  4. Meta (Facebook)
  5. Audi

Beware of the BHAGs

Patagonia’s announcement is likely to have a ripple effect in terms of social conscience and encourage some business leaders and ESG advisory boards to ask what else can WE really do to make a difference? There is a danger, however, in this unchartered territory that the more momentous the ESG themed BHAGs (big hairy goals), the greater the chance of failure. Failing to live up to your ESG credentials is possibly worse than not making any promises at all. However, saying that, it is usually now a requirement from investors, customers, employees and regulators to show how your business is making a difference. Towergate’s own regulator, the FCA, has recently announced it is recruiting a brand new ESG advisory committee to help the board reach its own obligations.

A claim doesn’t have to be justified to initiate costly legal defences

ESG claims made on a website, in a brochure or prospectus or in reports must be backed by reliable management information or a company may risk litigation. Litigation can come from almost anywhere – employees, shareholders, creditors, regulators, customers, competitors, the Government or anyone else who feels they have suffered a loss arising from the actions of a director or officer. It is also important to remember that a claim doesn’t have to be justified and factual to initiate costly legal defences. ESG litigation can impact the reputation and goodwill of a company and cause indirect loss due to the time and level of attention required to manage the relationship with employees, customers and stakeholders.

Financial loss can occur directly as a result of fines, damages and expenses associated with the claim as well as loss of sales and decline in custom.

Protecting Your Company

ESG factors are increasingly being taken into account by underwriters when considering Directors & Officers liability insurance. D&O insurance is designed to protect directors and officers from claims arising from decisions they make and actions they take. D&O underwriters are increasingly recognising the benefits of a company having a strong ESG risk management framework to mitigate the risk of environmental litigation. If a group of claimants (internal or external) decide to sue Directors having suffered injury or damage as a result of their alleged failing, this will incur expensive defence costs. Lawsuits can last for years and the costs associated with them are rising so it is essential that companies have good D&O insurance in place.

Continuous education on this topic is key for directors and officers to ensure that a company knows:

  • How much D&O coverage it needs
  • What and who is covered
  • What and who is not covered

D&O forms part of a company’s Management Liability Insurance. A specialist from Towergate Insurance Brokers can advise on all aspects of MLP.