New disclosure requirements could increase D&O exposures

Published on Wed, 27/04/2022 - 12:47

by Lee Coppack

Expanding legal requirements for large and listed companies to report on sustainability and ESG matters are increasing personal exposures for directors and officers, with D&O underwriters requesting more information as a result.

As Greig Anderson, Partner of solicitors Herbert Smith Freehills, commented: “The introduction of any additional mandatory reporting obligations on an organisation will increase the risk of liability for its directors.”

“As ESG is such a hot topic at the moment, there must be a concern that new climate-related disclosure requirements will simply add to the pressure organisations and their management already face from stakeholders to report their ESG impact and ambitions, with an increasing risk of misstatements to investors,” he added.

“This could raise the prospect of regulatory action or shareholder action against the company or its directors.”

On 6 April, new rules went into effect in the UK for a large number of companies (in addition to those for whom similar rules were put in place earlier in the year) that legally enshrine the previously voluntary recommendations created by the international Task Force on Climate-Related Financial Disclosures (TCFD).

Many other jurisdictions have proposed or completed regulations in line with TCFD or other sustainability, climate change and ESG disclosures. For example, a public consultation is underway on proposals by the US Securities and Exchange Commission (SEC) for new requirements for public companies to disclose climate-related information.

Owen Dacey, Head of Claims at D&O managing general agent Rising Edge, said the important questions to ask in preparing for renewal are:

1) has the company has done enough to manage, disclose and mitigate its relevant climate risks;

2) has it delivered on its commitments to address these risks; and

3) are the company shareholders on board with the strategy?

“If not, there is an increased chance of litigation for companies and their directors and officers in this space,” he said. “Internal legal and risk management functions need to work together to ensure their disclosure statements are robust. Underwriters are asking a lot more questions, and not all insureds are well prepared yet.

““Indeed, we are seeing a number of initiatives in the market, including through our own client engagement, that aim to improve the insured’s risk profile.”

Maureen Gorman, Managing Director in the US Financial and Professional (FINPRO) Practice of Marsh, confirmed. “ESG disclosures are becoming an increased risk consideration factor, and we are starting to see more questions in the D&O underwriting process.”

Dr. Beverley Adams, Head of Climate Resilience and Strategy for Marsh Advisory in London, notes that her team are providing an increasing number of briefings and practical training for clients at all stages of the ESG journey, from screening and scenario modelling to net zero plans and due diligence.


The D&O market is not expecting an immediate avalanche of claims, but in addition to the usual sources of action mentioned by Anderson, we are seeing the emergence of NGOs and activist groups with a legal approach.

ClientEarth, which describes itself as “an environmental charity that uses the power of our laws to protect life on earth”, has already said it wants to hold individual directors responsible for what it says is mismanagement of climate risk.

A growth in litigation funding is another factor that could increase actions. A survey published in March by corporate law firm Macfarlanes found that funders are looking to deploy ever-larger sums and expand the type of cases they will back.

Although the new disclosure requirements bring increased exposures, Gorman said she and her colleagues at Marsh believe the risk management processes will benefit the companies more broadly. Adams added that a strong focus on ESG and corporate governance will give companies the opportunity to focus on business adaptation and evolution.

Anderson said: “It will be interesting to see to what extent D&O insurers seek to influence policyholder conduct in this space by encouraging good ESG governance through policy terms and lower premiums or other advantages.”