Re/insurers have been warned the year ahead will see regulators in Europe and the US crack down harder on greenwashing.
Examining the emerging risks for 2021 Simon Konsta, Partner, Clyde & Co London, warned claims by firms they are moving towards greater Environmental Social Governance will be put to ever greater test.
He said so-called ESG stocks – those perceived to perform better against environmental, social and governance metrics – demonstrate superior market performance and attract ongoing high levels of investor interest, will need to be evidenced.
It comes following a rise in “Greenwashing”, the practice of making unsubstantiated or misleading claims about the environmental status of a business or its products, practices or services.
“Both the TCFD (Task Force on Climate change Disclosure) and SEC (Securities and Exchange Commission) are running consultations on how to improve ESG and climate change financial disclosures which are expected to report in 2021,” he said. “In addition, 2021 will see regulated businesses, including re/insurers, required to give detailed consideration to how they will comply with the Supervisory Statement on TCFD reporting requirements, or alternatively to explain their non-compliance – a move that could invite significant reputational damage.”
Mr Konsta added examples of greenwashing were already being brought to light. In January 2020 ENI, a state-backed energy company, was fined €5m by the Italian Competition and Market Authority for claiming its palm oil-based diesel was “green” when the production of palm oil is driving deforestation. In February, the UK Court of Appeal ruled in favour of green campaigners’ case against the Heathrow Terminal 5 runway decision, citing a failure to consider its commitments under the Paris Accord.
“At this time of mounting consumer expectation (and protection), ESG misstatements constitute a legal and reputational vulnerability,” he added. “In a world of increasingly accessible litigation funding and an ever more sophisticated claimant bar with access to collective consumer redress remedies and class actions, consistent and accurate reporting around climate, sustainability and ESG promises will be essential.”
Mr Konsta said for those that get it right the benefits would be tangible, as will the downsides should they fall short.
“Businesses that get it right will be much more attractive to insurers both from a liability and an investment perspective. Carriers will need to exercise caution to identify those that stray into greenwashing as the cost of association with those businesses could be high.”