Marsh ESG Risk Rating tool to help Asian firms get preferential D&O T&Cs

Companies in Asia can now be considered for preferred D&O liability insurance policy terms and conditions based on the strength of their environmental, social, and governance (ESG) risk frameworks, according to Marsh.

The broker said earlier this year that on completion of its ESG Risk Rating or another approved third-party rating methodology, and subject to their risk score meeting minimum underwriting criteria, insurers on Marsh’s panel will consider Marsh clients based in Asia for preferred D&O policy terms and conditions on their ESG-related exposures.

Marsh’s Asian clients can also use the results of the ESG Risk Rating to identify their most critical sustainability and climate-related risks and opportunities to further develop their ESG strategies.

Marshall Lee, head of climate and sustainability strategy, Marsh Asia, said: “As clients transition to a lower-carbon economy, robust frameworks that assess businesses’ ESG commitments, actions and performance will increasingly be required. Prior to the launch of Marsh’s ESG Risk Rating, the lack of standardised ESG disclosure obligations and the resulting data gaps made this evaluation challenging in Asia. We are pleased that Marsh’s clients in Asia can now be rewarded for their efforts in managing the liability risks associated with ESG-related exposures, a key risk covered in D&O insurance.”

Sharanjit Chaggar, D&O practice leader, Marsh Specialty Asia, added: “The risk of claims arising from ESG-related issues such as breach of duty, disclosure obligations and misleading statements is a growing concern for directors and company boards in Asia. Marsh’s collaboration with our panel insurers in Asia is a key step in recognising – and rewarding – the increasingly prominent role that robust ESG risk management plays in evaluating D&O liability risk profiles.”

Lee told Global Risk Manager that the significant liability risks from litigation, regulation, and activism mean that boards of directors should be considering how best to govern their company’s ESG agenda and its progress.

He noted some examples of liability risks associated with ESG-related exposures:

• Regulatory investigations and fines to ensure that businesses are complying with environmental legislation such as Task Force on Climate-related Financial Disclosures (TCFD) on how organisations manage climate risks and opportunities, including on Scope 3 aspects like companies’ supply chains and customer bases.
• Companies are facing increasing litigation risk on breach of duty of care from environmental groups and activist investors due to failure by their board of directors to consider and mitigate the impact of climate change on their business, and to take advantage of the opportunities it might create.
• Claims from employees who feel they have been discriminated against or constructively dismissed – particularly during the Covid pandemic – may pursue individuals in senior management, as well as the entity, for losses suffered. Regulators are also increasingly interested in the action companies are taking to diversify their leadership.
• Activist investors are increasingly pursuing listed companies for greenwashing – allegedly misrepresenting their climate credentials or failing to take action in accordance with their stated climate goals or found to be making false representations about the ‘eco’ status of their products.

The Marsh ESG Risk Rating tool seeks to identify ESG risks by measuring a company’s sustainability performance against more than ten internationally recognised standards and frameworks published by leading organisations, including the Global Reporting Initiative, Sustainability Accounting Standards Board, TCFD, and the World Economic Forum.

According to Lee, by providing the ESG Risk Rating tool to companies, Marsh hopes that companies in Asia can take an approach to managing their ESG risk that includes measuring how a business is positioned compared with international best practice and standards, and managing ESG risks and opportunities by identifying, prioritising, and integrating them into companies’ risk management planning, as well as communicating a company’s ESG strategy and performance in a structured and detailed framework to insurers and potential capacity providers, and mitigating and transferring ESG-related risks.

Ali Chaudhry, FINPRO leader Asia, Marsh Specialty, told Global Risk Manager: “The terms and conditions will evolve depending on specific countries and the risk profiles of the businesses; for example, whether the companies are publicly listed or privately owned, their geographic footprint, shareholder base, customer base, the nature of their business and industry.”

Lee added: “Climate and sustainability present a broad spectrum of risks to companies – from physical, transition to liability and others. Ultimately, our goal is to provide clients with tools and solutions to identify and manage these risks, in partnership with insurers. Depending on a client’s business model, their exposures to climate and sustainability risks are different, and we seek to support them across the various risks.”