The Importance of Environmental, Social, and Corporate Governance

Locke Lord LLP

Climate change has shown many investors, regulators, and lawmakers that it is a threat to financial stability. Environmental, social, and governance (ESG‎) has allowed everyone from regulators to consumers to take active steps to solve this problem.

ESG has become an important consideration in the recent years as investors and consumers ‎push for sustainable, moral and ethical business and consumption practices. ESG may have started as ‎a balance between innovation and financial protection, but many companies are making ESG a ‎part of their identity and a core factor in their decision making. Some Insurers have taken steps to ‎utilize negative screening for their investments and underwriting in the coal, natural gas, or oil markets. Others are working towards a transition period where they gradually limit or eliminate their investments and underwriting in those markets. ‎

Currently, European regulators and Insurers have led the charge to create ESG standards. Some European regulators and institutions created ESG disclosures requirements to identify, monitor, and manage these risks. These changes have spurred European Insurers to commit to making ESG more permanent in their underwriting and investment decisions.

Within the United States, The New York’s Department of Financial Services (NYDFS) and National Association of Insurance Commissioners (NAIC) are taking charge to set a framework. For example, the NYDFS expects all New York Insurers to include climate change related financial risks into their governance frameworks, risk management processes, and business strategies. NYDFS is expected to release its ESG guidelines this year and has provided guidance and an FAQ for the insurance industry on this issue here. Further, the NAIC’s Climate and Resiliency Tax Force is working on a Climate Risk Disclosure Survey to inform their potential recommendations.

Be sure to follow our blog to stay up to date on ESG developments throughout the country, Europe, and the insurance industry.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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