Assessing modern governance with emerging ESG factors: Green targets and ‘greenwashing’
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Insurance 2022 - the year ahead
As corporates race to make promises to meet Net Zero targets, regulators will demand transparency and shareholders will hold them accountable for their promises.
Following COP26 and the Glasgow Climate Pact, we will see more and more companies across the globe make further Net Zero promises. In tandem, shareholders will increasingly hold directors and officers accountable for dissatisfaction or non-compliance with those promises.
In 2021, we have seen various shareholders with climate change agendas, often minor shareholders, successfully lodge resolutions against company executives of large corporations, such as removing directors, replacing board members, forcing transparency of emission targets and investment strategies, selling fossil fuel assets and restructuring investment strategies to become more renewable. These trends of shareholder activism and shareholder accountability of directors and officers will both intensify in 2022.
Already we are also witnessing the first global case that challenges the veracity of a company’s Net Zero target, by Australian shareholder ACCR. ACCR commenced proceedings against Santos for engaging in misleading and deceptive conduct in respect of various Net Zero representations. Shareholder activism in the US will also be further facilitated by the SEC decision that climate change shareholder proposals will no longer be able to be excluded from a vote at companies’ annual general meetings.
In parallel, in 2022 we anticipate further regulation and regulator attention to ensure greater transparency from directors and officers in their Net Zero targets and commitments, particularly to combat greenwashing. COP26 saw the announcement of two new prototype global standards: one on climate-related disclosures and the other on general sustainability disclosure requirements – both of which will be overseen by a new regulatory body – the ISSB (International Sustainability Standards Board). There is also growing domestic regulation such as the new UK requirement for large companies to publish net zero transition plans by 2023 and the European Parliament Directive on Corporate Due Diligence and Corporate Accountability.
As regulators require enhanced transparency of ESG targets and actions by directors and officers, this will provide further opportunity for shareholders to further hold them accountable. And at a time of mounting shareholder and consumer expectation post COP26, ESG misstatements will constitute a real legal and reputational vulnerability for companies and their directors and officers (and their insurers).