Future-oriented action strengthens strategic resilience.
In practice, companies are often faced with a dilemma when their focus on abstract goals such as the implementation of an ESG strategy (environmental, social and governance) and the resources required for it are disrupted by sudden unexpected events. This often makes it difficult to continuously pursue certain measures, even though they are necessary for sustainable change. As a result, the perception of systemic risks, is repeatedly pushed into the background despite it being vital for companies to focus on managing these risks to ensure they are prepared for these startling unforeseen events. Never has this been truer than now when we seem to be stumbling from one crisis to the next and company managers are being called upon to make forward-looking decisions. There’s an urgently needed paradigm shift away from focussing on short-term results towards building strategic resilience.
Companies need an ESG strategy
The increasing legal and social relevance of ESG issues is also leading to a growing awareness of sustainability in the corporate context. The mounting pressure from customers, business partners, shareholders, and investors on management and supervisory boards is real and companies are therefore being obliged to develop an ESG strategy, monitor its implementation and compliance, and communicate it accordingly.
Worldwide natural disasters are already leading to premium increases in traditional insurance solutions. Solely relying on a NatCat-Models provider will not solve the problem of affordable capacity. The situation will continue: high risks will provoke limited capacity for high margined prices.
Opportunity or risk?
Company managers not only have to ensure that the company fulfils all legal requirements, they must also comply with ESG criteria in accordance with internal standards, contractual commitments, etc. as part of their duty of care – not only within their own company, but along the entire value chain.
It is also important to seize opportunities and take action, be it by changing products, services and processes or transforming entire business models. Failure to do so can result in financial losses due to competitive disadvantages or loss of reputation, for example, and jeopardise the existing business model.
Greenwashing, i.e. the misrepresentation of ESG performance, can also trigger regulatory consequences, legal disputes and shareholder lawsuits, and therefore represents a significant risk.
Integrating liability issues into risk management
Investigations by supervisory authorities and litigation risks in connection with ESG are increasingly becoming a risk factor – especially when it comes to increased reporting and disclosure obligations and compliance requirements, as well as due to the rising number of lawsuits filed by environmental and climate groups or activist investors. These are no longer only directed against companies, but also directly against their executive bodies.
If corporate bodies fail to consider and mitigate the effects of climate change on the company, this can lead to accusations that they have breached their duty of care towards the company. They must therefore fulfil their organisational and monitoring duties with the greatest possible care and transparency and adapt their risk management in such a way that ESG risks are adequately considered.
D&O insurance has ESG under the spotlight
Non-compliant responses to ESG standards are now one of the most important risk trends in the field of directors’ and officers’ liability insurance (D&O insurance). In principle, this offers protection through the payment of defence costs and, in the event of liability, reimbursement of any claims payment, although any exclusions must be checked on a case-by-case basis.
Insurers are already increasingly taking ESG criteria into account when assessing companies’ risks. A clear ESG strategy and its implementation is a decisive key to the insurability of management and supervisory bodies’ liability risks. With ESG so high on the agenda and bringing so many new risks, now is not the time to take your eye off the ball, no matter what crisis you are fire fighting.
This article was published first in the Austrian INDUSTRIEMAGAZIN (https://industriemagazin.at/)
Georg Winter
CEO GrECo Group
T +43 664 962 39 06
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