Stephan Geese, manager of global corporate and specialty (AGCS) liability specialist, Allianz Group’s industrial insurer, in a guest article illustrates the next generation of liability risks for top managers and managing directors, which ultimately endangers their personal assets as well Are: Environmental, Social and Governance Issues (IT G).
Especially for managers – board members and managing directors – it will soon be even more inconvenient. Since 2018, more than 170 regulatory measures have been taken on environmental, social and governance issues (ESG) at the national and EU levels, according to analysis by law firm Herbert Smith Freehills. With about 65 percent of these rules, Europe topped the list. Companies everywhere are under public scrutiny for their ESG performance. Social justice protests, activist investor campaigns or money laundering programs can create new legal disputes. Climate activism and related legal proceedings have also increased. More than 30 countries have filed lawsuits against large carbon-emitting industries, most of them in the United States. An important managerial obligation for ESG companies creates risk – as they do for their insurers.
Here are three examples:
- New York City sued several oil companies and a lobby group in April for misleading advertising and fraudulent business practices. According to Mayor Bill de Blasio, corporations are systematically hiding their role in climate pollution through PRO campaigns. Oil companies should not be allowed to profit by coming into this trap. The city demands that – allegedly illegal – greenwashing be banned and companies pay fines.
- Eight young Africans against the world’s largest chocolate makers: Some big food companies may soon face US court due to cocoa mining in West Africa. A team of lawyers filed suit against the eight youths who are said to have been kidnapped from their Mali’s homeland to Ivory Coast as children to harvest cocoa as a slave. If the court ruled in favor of the youth, “corporations would fall into real economic difficulties”, the plaintiff’s lawyers believe. It is estimated that about half of the world’s processed cocoa comes from the Ivory Coast.
- Petroleum and natural gas company should be held liable for pollution of land in Nigeria. The group was blamed for several oil spills in the Niger Delta in early 2021 and had to pay damages. In particular, the group should compensate two villages for contamination of their fields. The exact amount will be determined later. The company had repeatedly denied the allegations and said that the saboteurs were responsible for the leak. The court saw it as “disproportionately proven” in only one case.
Managers should therefore keep an eye on these six risks:
1. Climate change: However ESG covers a much broader spectrum than just climate change – namely social mobility, diversity, trade and human rights, as well as sustainable and social investment – focusing on climate change. Many lawsuits have focused on disclosure to date. Companies and board members failed to adequately disclose the main risks of climate change. In the United States, for example, there have been several recent forest fire lawsuits against companies for failing to reveal environmental changes, which have led to more wildfires. And just as much as it can negatively affect the business. It is the job of the board members of the company to take corporate responsibility for the climate – all with due care and with proper reporting.
2. In the previous year Diversity lawsuit on board members Strong, especially in the US. Most of the time, he was accused of failure of his duty of care due to insufficient diversity on board or other management positions. Several studies suggest that board diversity leads to better risk management and better financial performance. According to McKinsey & Company, top quartile gender, ethnic and cultural diversity companies have a 25 percent greater chance of outperforming or outperforming their executive teams than fourth quartile companies.
3. Pollution and environmental disasters: Following incidents such as dam breakdowns or oil spills in an ecologically sensitive area, board members and managing directors are increasingly asked if they have appropriate risk management procedures in place to prevent such accidents and to what extent they Was aware of the possibility of such an incident.
४. Greenwashing Claims: Incidents in which companies misleadingly claim to be a naïve and more responsible public image have been the subject of legal proceedings in the US – it is only a matter of time before the regulators crack down. In the UK, the Financial Conduct Authority has already developed principles to counter false claims. Regulators in the US and Europe are also dealing with this issue.
5. the CEO compensation, CEO, is a hot topic, especially for investors. The Norwegian Sovereign Wealth Fund has a trillion dollar investment volume, making it one of the largest in the world. He and several other companies, which faced criticism for opaque compensation, have developed a control over compensation proposals made by management in companies. At the same time, the number of companies that want to add CEO remuneration or directors to climate or ESG-related goals such as reducing greenhouse gases is increasing.
६. Cyberspecified ESG is becoming one of the most important issues for the sustainability of a company. Determining the cyber resilience status of a company is becoming increasingly important to investors, while assessing potential cyber risk should be an integral part of any M&A process because of the many data breaches and the possibility that an acquirer will The company can be held liable for events prior to its merger. Could be done. For example, 2018 data breaches by the Marriott hotel chain, which resulted in more than US $ 20 million in fines for Marriott, were blamed for the 2014 break-in at Starwood. The hotel group was re-taken by Marriott in 2016.
Conclusion: Risk managers should prepare ESG disciplines for these new risks in advance and integrate them into their company-wide risk management and all relevant operational processes.
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