D&Os and their insurers should take a proactive approach in monitoring and dealing with risks amongst their insureds, says partner
Individual directors could be prosecuted if their duties are seen to breach climate-related laws, law firm Kennedys has warned.
In a statement released earlier this week (14 June 2023), Kennedys highlighted that global litigation cases related to exposures associated with environmental, social and governance (ESG) have more than doubled since 2015 to over 2,000 – a quarter of which occurred between 2020 and 2022.
Of these cases – which have increasingly centred on greenwashing – compensation has often been sought from company directors, with losses falling on directors and officers (D&O) insurers.
Greenwashing is when a business makes misleading claims about the environmental impact of its products, services or brand.
Global oil giant Shell was involved in a case seeking to hold company directors liable for failing to prepare its company transition to net zero, having faced allegations from environmental law charity and minority shareholder ClientEarth in February 2023.
Although the case in the High Court in May 2023 ruled that the law does not impose specific climate change duties on directors of Shell, Kennedys believes “that doesn’t mean the issue is going away”.
Kennedy’s partner Nicola Pangbourne said: “Given that the UK’s current environmental laws allow regulators to prosecute directors where offences by a company are committed with their consent, connivance or neglect, we could also see similar offences created for individual directors.”
Broker collaboration
One recent shareholder case that Pangbourne believes D&O insurers should monitor is McGaughey & Davies v the Universities Superannuation Scheme.
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In that instance, the High Court dismissed a claim alleging climate related breaches of directors’ duties.
The claimants’ appeal was recently heard, with judgement expected in the coming weeks.
Pangbourne added that D&Os and their insurers should ”not only focus on climate governance, but take a proactive approach in monitoring and dealing with these risks amongst their insureds”.
“It is a good idea to work in collaboration with brokers to promote mutual understanding of the potential risks amongst their insureds to get the best possible outcome for all parties,” she added.
Kennedys further highlighted that the FCA’s virtual Greenwashing TechSprint initiative will bring together 13 international regulators and interested firms over the coming summer to “to develop a tool or solution that can help regulators and the market effectively tackle the risks of greenwashing in financial services”.
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