Conduct risks such as ‘greenwashing’ stand to be major source of environmental liability claims
Appetites are changing in response to the growing environmental and significant business challenges posed by environmental factors, which in turn is mobilising insurers and reinsurers to reassess their own operations and increase efforts to demonstrate climate leadership.
This is according to a report by law firm Kennedys, which finds that the underwriting practices of (re)insurers are a major catalyst for change among businesses in the ongoing climate crisis.
John Bruce, partner, Kennedys said: “The growth in sustainability and climate-related issues impacts on all types of insurance policies for the simple reason that climate risks are a constant, growing concern.”
Environmental liability risks
The three main types of climate litigation being seen in the courts which bring Directors and Officers (D&O) and Errors and Omissions (E&O) insurance into focus, namely:
- Lawsuits targeting states challenging the adequacy of climate policies.
- Lawsuits targeting companies over their emissions of carbon dioxide, alleging climate-related harms.
- Other litigation strategies including activist shareholder and employees, including with regard to misleading environmental promises (greenwashing) and non-disclosure of climate-related risks.
Within this already active, litigious landscape, Kennedys notes two major developments compounding pressure as companies transition towards sustainable practices.
First, a climate change ‘duty of care’ is owed by public and private actors, which is already being tested when establishing causation. As with the ‘duty of care’, shareholder activism is also on the rise and is set to drive a change in corporate behaviour.
Individuals and NGOs are increasingly using the court to try to achieve their objectives, including enforcing board responsibility with regard to corporate compliance with regulations, targets and broader environmental principles. Insured companies must, therefore, focus on improving their ESG regulatory frameworks.
Deborah Newberry, director, corporate affairs, Kennedys said: “The evidence of climate action being taken in many countries is deeply encouraging. However, it is clear that all sectors have an important role to play in achieving further and substantial emissions reductions.
”Addressing the challenges of climate change requires true innovation – in institutions and organisations; understanding and thought; technology and leadership.
”In turn, the right policies, infrastructure and regulatory landscape are required to enable business to help meet the targets.”