Is environment, social and governance (ESG) the latest emerging risk?

Is Environment, Social and Governance (ESG) the Latest Emerging Risk?

The topic of climate change is not far away from most conversations, particularly given high-profile events and protests that have taken place. While the method of such protests is the subject of much debate, the underlying message is one that governments and business leaders throughout the world are taking extremely seriously. Quite simply, the message is that we need to act now to protect our planet

As a result, businesses of all sizes are more frequently being asked to provide details about their ESG initiatives, not only to potential customers and employees who have an increased interest, but also to regulators and investors. In some instances, these initiatives are crucial to obtaining financial support or meeting contractual obligations.

While for most this is welcomed, it does present an increased risk to Directors and Officers of these businesses, as the potential to provide inaccurate, misleading or misstated information is greatly increased. Whether intentional or not, providing incorrect information regarding ESG credentials could result in litigation against directors and/or officers.

insurance insider believes “the rising pressure on companies to provide guidance about their ESG credentials threatens to be a new source of claims to impact the directors and officers market.” The article also goes on to say that “as public and political interest increases…share prices are more sensitive than ever to potential ESG failings.”

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.

Should a claim be made against a Director, Senior Officer or any other management staff personally, company assets or funds will not be able to help in defending these claims and it’s unlikely any commercial insurance policy will have any protection against this either. This is where directors and officers (D&O) insurance comes in. It protects personal wealth from the legal costs and awards in defending against civil, criminal and regulatory claims or investigations.

D&O insurance should be reviewed as part of a management liability portfolio (MLP) which can also include employment practices liability insurance and corporate legal liability insurance. See our dedicated page for more information about MLP insurance.

Discuss environment, social and governance risk

To discuss the risk of ESG on your business, talk to your usual Towergate Insurance advisor or email 

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Mark Brannon Cert CII, commercial, sales, broking and client directorAbout the author

Mark Brannon Cert CII is a respected industry leader with over 17 years’ industry experience in a variety of roles within the business insurance sector. He works across a wide spectrum of insurance product and policy development, delivery and optimisation for clients, including claims, insurer relationships, marketing and communications, and risk management.

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For more information or for a full review of your insurance needs, please see our insurance specialisms, contact your usual Towergate Insurance Brokers adviser or email