ABC’s of ESG: How Environmental, Social, and Governance issues are emerging as litigation triggers

A few years ago, even seasoned insurance professionals probably wouldn’t have been able to say what “ESG” stood for. Now, the term may be familiar, but its scope and litigation implications are not well known. As ESG gains importance, we must better understand its complexities. First, it’s key to understand what comprises the totality of ESG, what regulations are in place (or may be in place), and how and why ESG has demanded voluntary attention from corporations. We are in a transition phase from thinking about ESG conceptually, to investors, regulators and society demanding ESG metrics. Soon it will be difficult to remember a time when ESG was not an anchoring feature of corporate assessment and scrutiny.

For some time now, the public has exhibited a growing interest in the combined “ESG” issues as a test of corporate responsibility and citizenship. The topic has rapidly evolved as a driving consideration for global investment behavior. Corporations are no longer valued strictly in the context of profit delivery. Changing public interest is especially evident in headlines showing that managed funds and investors are seeking evidence of sustainability and green behaviors as factors for core investment decision making. Financial markets are demanding ESG disclosures as a condition precedent to fiscal support. Corporations will need to meet the demands of desired ESG actions to maintain shareholder and public approval. Those demands include net zero commitments which may also result in claims for non-compliance.

All eyes are on ESG as it approaches near certain regulation, is already a prominent selection criterion for the plaintiffs’ bar (and litigation funders) and is charging into view as an underwriting attribute. For insurers, it’s time to make ESG a staple conversation in risk assessment. Corporate insureds should have detailed plans for their ESG disclosure efforts and should be able to discuss how they ensure that their disclosures are accurate and reduce the risk of litigation.