Businesses should review their directors and officers liability insurance and other policies to better understand how they would protect them from a widening array of claims arising from environmental, social and governance risks, a panel of experts said Wednesday.
Heightened SEC enforcement actions against investment advisers, on whistleblower tips, and on company disclosures, show the increased attention being paid to ESG exposures by the government, said William Passannante, shareholder at Anderson Kill P.C. in New York.
Shareholder derivative actions against boards on diversity, equity and inclusion policies, securities class-action lawsuits against companies on ESG-related issues that allegedly lead to stock drops, and backlash restricting ESG activities are other potential areas of liability where D&O issues may arise, Mr. Passannante said.
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Clients are asking questions in a D&O insurance recovery context about what to do with these increasing risks, said Diana Shafter Gliedman, shareholder at Anderson Kill.
“It is important to think about ESG when procuring insurance coverage, to consistently review your insurance program, both the D&O policies and the other policies that may act in tandem, to make sure you have the most up-to-date policies and that you are aware of the various exclusions and endorsements,” Ms. Shafter Gliedman said.
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Intuitively, you would think that companies and directors and officers that were lagging behind on ESG initiatives would be a bad D&O insurance risk, “but that’s not really the case,” said Raymond A. Mascia Jr., shareholder at Anderson Kill.
“Actually, companies that are proactive on ESG face potential liability,” Mr. Mascia said. For example, when a company announces it has significant sustainability efforts and it turns out that was a misrepresentation, or not entirely true, he said.
“Have policyholders in the insurance industry appreciated that aspect of this yet?” he said.
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