ESG Pledges Risk Eroding Reputation Premium; New ESG Insurance Products Can Preempt "Greenwashing" Allegations and Protect Value, Says Steel City Re CEO

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Statements made by regulators, advocates and politicians during COP26 are showing what thin ice companies are skating on when it comes to their ESG practices and pronouncements. It’s a recipe for reputational crises with potentially tangible, material impacts on directors and executives.

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Even well-governed firms can be caught up in charges of ‘greenwashing.' Recent litigation has made it clear that both investors and regulators have the right to consider aspirational ESG statements as material and Boards are being targeted in courts of law as well as courts of public opinion.

Expressions of anger and disappointment by regulators, activists, employees and politicians during COP26 are showing that companies’ ESG practices and pronouncements have placed them on thin reputational ice, says Nir Kossovsky, CEO of Steel City Re, which offers ESG and reputational insurance products.

In a survey of lawyers who advise clients on ESG-related matters, company reputation was most often selected—and by a large majority of respondents (83%)—as a primary driver of client decisions to prepare ESG disclosures.

“In order to protect their reputation premium and differentiate themselves from those using ESG as a publicity stunt, dutifully governed companies need to integrate risk-based processes and third-party validation into their ESG target-setting,” Kossovsky said. “Those that fail to do so risk leaving themselves, their executives and boards exposed to the wide-ranging long-tailed costs of passionate disaffected stakeholders. The pile on of bloggers, regulators, and litigators can erode a firm’s reputation premium, instigate employee disengagement, and make the lives of corporate Directors especially difficult.”

To help send a clear signal of quality governance within this heightened level of scrutiny and legal and reputational risk, Steel City Re launched a new ESG insurance product designed to cover extraordinary “strategic managerial and governance actions signaling corporate values” that may arise in the context of an ESG crisis. It is available to qualified Boards that have established world-class governance practices—the oversight of mission-critical processes that investors, employees and regulators are expecting.

“Even well-governed firms can be caught up in baseless but costly charges of ‘greenwashing,’” said Kossovsky. “Recent litigation has made it clear that both investors and regulators have to be coached in discerning aspirational ESG statements from thoughtfully-reasoned ESG statements in the context of securities disclosures.”

Steel City Re has been the leading provider of parametric insurance solutions for reputation risk for more than a decade. It developed ESG Insurance specifically to help manage the preeminent reputational issue facing corporate boards today, preserving their hard-earned reputation premium.

Like Steel City Re’s flagship enterprise solution, ESG Insurance is a value-enhancing package of services designed to forge reputation resilience for Boards of Directors through parametric reputation insurances and risk management advisory services built on a framework of behavioral economics. The policy offers payments for wide range of costs a firm may incur on behalf of the board or individual directors in pursuit of reputation resilience and restoration in the context of ESG issues. The policy is available only to firms whose reputation risk governance, leadership and controls have been vetted through outside underwriting – thus providing objective, outside authentication that can be communicated to stakeholders.

Kossovsky discussed ESG risks and solutions during his remarks ESG, ERM, and the Reputation Premium as a panelist at the Risk and Insurance Management Society (RIMS) ERM Conference in New York.

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Desiree Niccoli
Alschuler Communications
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Steve Alschuler
Alschuler Communications
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