Aon | Professional Services Practice
Release Date: January 2022
Implications for D&O Litigation From Climate-Related Risk
The Financial Services Group and the ESG Council at Aon discusses climate-related risk and D&O litigation in 2021’s Directors’ and Officer’s Liability Update - The “E” in ESG
The growing emphasis from various stakeholders on material environmental, social, and governance (ESG) factors, including cyber security, climate, and human capital, is driving companies and their boards to re-evaluate their disclosures and board practices:
- An expectation exists for all companies to improve transparency revolving around the implementation of their ESG strategy, including ongoing progress.
- Large investors expect companies and their boards to be able to articulate strategy and oversight in disclosure and through engagement.
- The U.S. Securities and Exchange Commission (SEC) now requires public companies to report on a quantitative and qualitative basis those material factors driving and impacting human capital management, a sign that investors and other stakeholders recognize people as one of the firm’s most critical assets.
- Human capital management, and diversity, equity & inclusion (DE&I) more specifically, has been a primary area of focus for institutional investors, proxy advisors, retail stockholders and more – including addressing DE&I in the boardroom itself.
- Continuous education on these evolving topics is key for directors and the C-suite alike to stay on top of material risks and demonstrate a level of sophistication during critical exchanges, e.g., underwriters, investors, etc.
Research has shown a strong correlation between the strength of a company’s ESG performance and a decrease in the probability of a company experiencing negative incidents impacting financial performance – as well as improvement of a company’s ability to secure insurance coverage in the future. As global losses from natural disasters, cyber breaches/hacks and liability lawsuits continue to increase, insurance companies are beginning to formalize their 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.
While it is important to have a balanced approach to all aspects of an organizational ESG strategy, Directors’ and Officer’s Liability Update - The “E” in ESG focuses on the current climate-related risk landscape and potential implications for D&O litigation risk in the wake of this increased focus. Registration is required to access the full report.