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How the ‘E’ in ESG Impacts Directors’ & Officers’ Liability (D&O) Insurance

Environmental Social Governance (ESG) and Corporate Social Responsibility (CSR) concerns are becoming increasingly challenging for the professional services and wider insurance industry and have the potential to cause damage to reputation and brand to those companies providing advice or risk services to select industry sectors.

“The growing emphasis from various stakeholders on material Environmental, Social and Governance (ESG) factors, including cybersecurity, climate and human capital, are driving companies and their boards to re-evaluate their disclosures and board practices,” says Angela Jack Business Unit Head of Aon South Africa’s financial Services Group.

A D&O Liability Update released by Aon highlights some of these important drivers as follows:

“As global losses from natural disasters, cyber breaches/hacks and liability lawsuits continue to increase on an annual basis, the insurance industry is beginning to formalise its approach to incorporating ESG factors into the underwriting process across lines of business, particularly influencing outcomes in the Directors’ & Officers’ Liability (D&O) insurance market,” explains Angela.

Spotlight on the ‘E’ in ESG

Evolving stakeholder interest and new-pending regulations are triggering the need to develop and disclose climate risk/opportunity strategies.

“Underwriters are also looking for more transparency and accountability from current or potential policyholders, irrespective of industry classification or company size. Publicly traded companies may even experience negative consequences if not prepared to address the company’s climate impact and its risk management and disclosure plans,” Angela warns.

“Those entrusted to the leadership and direction of companies are expected to understand the impact of its operations on the environment and climate change, as well as how future climate change may impact the business overall,” she adds. As a result, there must be consideration of developing risk management strategies and establishing communication strategies that includes, but are not limited to:

The cover that a D&O liability insurance policy provides is an absolute necessity when it comes to the protection of the personal assets of directors, officers and other employees that are charged with supervisory and managerial responsibilities, who can be held liable for wrongful acts which may occur in their day-to-day management activities of the business or entity – and CSR and ESG fall very much within the ambit of these management activities.  The main purpose of a D&O policy is to offer financial protection for investigation and defence costs together with awards for a valid claim.

“Every company is unique. In developing a robust ESG strategy, companies must understand the expectations of all stakeholders, applicable regulations and the risks deemed material to it business. Taking this approach will help enable your company and your D&O broker to better engage with insurers and seek to secure a strong and sustainable insurance programme.,” Angela concludes. 

Also view:

Environmental Liability Insurance and Business Insurance

Safe Transport of Hazardous and Dangerous Goods

Construction And Environmental Liability Insurance

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