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NEW YORK – Environmental, social and governance issues are finding their way into the boardroom and corporate disclosures on ESG are increasingly considered by insurers, panelists said Wednesday at the Professional Liability Underwriting Society’s D&O symposium.
ESG is continuing to grow in importance as a strategic imperative for all organizations, said Maureen Gorman, managing director at Marsh LLC.
“Whether the litigation derives from issues around customers, or the war on talent, or capital investors, organizations of all industries and sizes are dealing with it,” Ms. Gorman said.
It’s also starting to make its way into discussions about insurance, she said.
D&O underwriting considerations have evolved over the last 10 years as event-driven litigation has increased, and there is much greater focus on ESG-related disclosures, said Meghan Marchica, managing director at The Hartford Financial Services Group Inc.
“There has been a shift in the nature of securities class-action suits over the years away from the traditional accounting-based allegations towards those filed in response to a company adverse event such as an environmental disaster, a cyber breach or MeToo allegations,” Ms. Marchica said.
While these suits are often weaker than traditional financial restatement cases and do have higher dismissal rates, even those suits that are dismissed still carry significant costs for companies, she said.
As the litigation has evolved the scope of what underwriters take into consideration has evolved as well. “Now underwriters are placing greater emphasis in reviewing companies’ ESG-related disclosures in their 10K, proxy filings, corporate sustainability reports, their website and investor communications,” Ms. Marchica said.
It’s important for underwriters to look for consistency across these communication channels. “There are gaping holes,” she said.
The regulatory environment is shifting as companies wait for guidance from the U.S. Securities and Exchange Commission on ESG disclosure requirements, panelists said.
The U.S. is at a “historic inflection point with respect to ESG regulation and in particular disclosure regulation,” said Ashley Walter, partner in charge, ESG, at Orrick, Herrington & Sutcliffe LLP.
“As attorneys, we are sitting here waiting for the shoe to drop,” knowing that next year’s 10K filing cycle will be impacted, he said.
Mr. Walter said he is working with companies to install ESG disclosure governance frameworks that ensure consistency in controls and procedures across the organization.
Erica Salmon Byrne, president of Ethisphere Institute and chair of the Business Ethics Leadership Alliance, said shareholders and stakeholders are not going to allow ESG disclosures to become a checkbox exercise.
“You don’t want your CEO signing onto a pledge that the company has absolutely no way of following through on. That’s the fundamental risk here,” Ms. Salmon Byrne said.
“If you don’t have the metrics and governance framework to actually know what the plan is, that’s where there’s risk,” she said.