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Future D&O claims likely to be shaped by ESG factors

Current trends suggest that future Director and Officers (D&O) claims are likely to be increasingly driven by environmental, social and governance (ESG) factors.

 

In June 2020, the first ESG guide for the global insurance industry developed by the United Nations (UN) Environment Programme’s Principles for Sustainable Insurance Initiative was released.

 

The Sustainable Insurance Initiative is based on four key principles:

  • Embedding Environmental, Social, and Governance issues in decision-making.
  • Working with clients and business partners to raise awareness of environmental, social, and governance issues, manage risk, and develop solutions.
  • Working with governments, regulators, and other key stakeholders to promote widespread action across society on environmental, social, and governance issues.
  • Demonstrating accountability and transparency in regularly disclosing publicly progress in implementing the Principles.

The ESG criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments with the environmental aspect highlighting a company’s relationship with nature. The social criteria centres around a company’s relationships with employees, suppliers, customers, and the communities where it operates.

 

As a result, the actions of directors and executives of company boards are being put under the microscope, particularly in the USA where there has been a rise of D&O “event-driven litigation” with law firms eager to bring class actions or force a settlement.

 

Major companies like Oracle, Facebook, Qualcomm and Norton LifeLock in the USA have been subjected to board diversity derivative suits and looking ahead to 2021, climate change, disclosure, social inequality, biodiversity  and corporate governance issues are some of the main ESG trends to watch for Directors and Officers.

 

As the number of company and individual insolvencies continues to rise during this difficult period in the business world, it is predicted that claims against D&O insurance will do the same.

 

W Denis Insurance Brokers has a dedicated ProFin team, based in London, that can offer specialist technical advice on management liability issues. To discuss this further with an expert at W Denis, please make arrangements with daniel.moss@wdenis.co.uk and on 0044 (0)113 2439812

 

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