March 13, 2024

Directors & Officers Insurance in the Face of Climate-Related Risk

Written by Carolina Alvarez Rey and Robyn Campbell
Directors & Officers Insurance in the Face of Climate-Related Risk

Directors & Officers Insurance in the Face of Climate-Related Risk

Due to globalization and information-sharing, companies need to consider how business practices affect people, profits, and the environment both domestically and abroad. This article will focus on board oversight of climate-related risk and its interaction with Directors & Officers (D&O) insurance.

In today's economic environment, robust corporate governance has never been more important. D&O insurance plays a crucial role in protecting the personal assets of corporate board members and executives, as well as protecting the corporation’s balance sheet. This type of insurance is available to both private and publicly traded companies and the potential exposures for each vary. Historically, D&O insurers have focused on underwriting a company’s operational and financial risk. Their focus has shifted to include how companies are addressing energy transition and physical risks as part of a holistic underwrite. In addition, they are considering climate-related disclosures, particularly in the case of publicly traded companies. Climate-related disclosures (or lack thereof) could pose a business risk from reputational damage, regulatory, and/or litigation standpoint.

Regulatory Landscape

Regulatory and compliance requirements vary in each jurisdiction which poses challenges to companies who carry on business in multiple jurisdictions. This article will not address the global regulatory landscape related to climate-related disclosures due to its complexities.

Following an international trend and focus on climate-related risk, there have been several new initiatives in Canada to address these concerns. To name a few, various levels of government have enacted legislation on environmental matters, the Canadian Securities Administrators have proposed disclosure obligations of climate-related matters for public issuers, and the Office of the Superintendent of Financial Institutions (OSFI) has recently published guidelines on climate-related risk management by federally regulated financial institutions.

Impact on D&O Insurance

The board of directors plays a critical role in ensuring the long-term viability of an organization, including oversight of climate-related risk. It is important for boards to understand and consider the potential impacts of climate change on a company's operations, reputation, and financial performance so that appropriate capital allocation and strategic planning can take place. These considerations, and how companies discuss them publicly can create additional disclosure risk for boards - whether by act or omission. In the absence of mandated disclosure rules, companies are left with a conundrum: to make voluntary disclosures and risk allegations that might be misleading, or remain silent and risk allegations of failure of oversight/breach of fiduciary duty with respect to climate-related risk.

The risks associated with climate-related disclosures and potential litigation are areas of concern for D&O insurers. They want to know that the actions being implemented by the insured are feasible and viable and that they align with the stated long-term strategic direction of the company. While publicly filed disclosures are considered by public D&O insurers, it is important to understand that private companies are not free from scrutiny simply because they are not listed on an exchange. The D&O insurers who specialize in private company risk are equally concerned about the nature of the statements made by private companies on their websites or elsewhere. Similarly to public companies, claims in the private space could relate to a product advertised as “environmentally friendly”, or statements regarding their business practices as it relates to climate (i.e. setting certain emission reduction targets). D&O losses directly correlated with climate change are still developing, however, as an industry, D&O insurers are highly focused on the potential for significant losses.

Above all, D&O insurers want to ensure public statements or disclosures by companies are accurate and attainable. Climate change is a systemic risk, and corporate governance will play a key role in the future of our planet. A company’s board and executives need to take appropriate action to ensure the long-term viability of a company, along with increasing shareholder value. Without a robust planet, with natural resources, healthy ecosystems, and stable weather patterns, achieving this poses difficulty for directors and officers.

Take Action

This section will outline some steps to mitigate the challenges described above. Please note the appropriate action may differ across organizations, depending on size, industry, and other factors:

  1. Contemplate the long-term sustainability of your organization, as well as current and future business practices.

    Current board structure – Is there a separate committee in place focusing on the impact of climate change on your organization? Have you identified some physical or transition risks you are exposed to? The creation of a separate committee on climate change could allow for a more focused approach to this enterprise risk. It could allow for the ideation of risk mitigation strategies as it pertains to resiliency in the face of climate change. A summary of discussions could then be presented to the board for their review and possible implementation.


    2. Host discussions to promote stakeholder engagement. Do your stakeholders have any expectations regarding how the company should be addressing climate change? An initial discussion with key stakeholders could help you draft a roadmap or identify some areas of concern for your business partners. Nurturing these relationships and bringing stakeholders along in the journey can help build trust, enhance reputation, drive innovation, and promote social and environmental responsibility.

    3. Remain informed on the latest regulatory changes and disclosure requirements. This can be done on your own, or by consulting a trusted advisor.



    • One approach is to establish a dedicated regulatory monitoring process that tracks relevant regulatory bodies, industry-specific regulations, and changes in legislation. A more informal approach could involve subscribing to regulatory news alerts, monitoring government websites, and engaging with industry associations that provide updates on regulatory changes. There are many resources available online (newsletters, articles, etc.) that can provide you with summarized information and often free of charge!


Marsh offers a variety of services to assist companies looking to understand and mitigate climate-related risks. Our risk advisory team can help you measure, manage, and minimize your total cost of risk, as well as provide assistance in anticipating future challenges and seizing opportunities. Marsh has developed an award-winning tool, the ESG Risk Rating, which can assist in identifying your most critical sustainability- and climate-related risks and opportunities. Marsh’s advisors can work with you to develop your ESG strategies and place the appropriate risk transfer insurance solutions. For details about Marsh's Directors & Officers insurance services, visit the Marsh D&O page.



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