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ESG risks – is there an insurance solution?

  • United Kingdom
  • ESG
  • Insurance and reinsurance
  • Consumer
  • Energy and infrastructure
  • Food and drink
  • Retail



The Risks

With an increased focus on ESG metrics, there are a number of new risks, including reputational damage, reduction in appeal to investors and loss of revenue due to decreased consumer interest which businesses need to guard against. Due to the complex nature of the factors involved, it can often be difficult for companies to ensure continuous compliance with their own ESG principles and, with public awareness and media scrutiny on the rise, a simple mistake can end up having a significant impact on revenue.

How can insurance provide a solution?

The insurance industry is reacting to these challenges, in tailoring insurance policies to assist businesses with providing a risk solution, in particular by “reputational harm insurance”.

Reputational harm insurance typically comprises the following core components:

1. Business interruption (loss of revenue)

Cover for short term financial consequences of reputational damage caused by negative ESG related publicity. At the outset, the insurer and the insured must agree the percentage by which the revenue must fall (over an agreed pre-defined period) following an incident, in order to trigger the cover. Historic data and financial projections should assist in evidencing the reduction in revenue, but insurers are likely to insist on the consideration of business trends to assist in calculating the reduction directly attributable to the incident.

2. Crisis containment

Cover to provide immediate support once an incident had been identified and to manage and mitigate the potential immediate and ongoing exposure.

Reputational harm insurance can be purchased at any time, including as part of risk transfer measures for a M&A transaction.


Reputational harm insurance is a proactive risk management tool which is intended to assist in maintaining reputation, asset and stakeholder values, accessing immediate capital in the event of a crisis and protecting the value of a M&A transaction.

As with all insurance policies, the policy will need careful scrutiny and possible negotiation of its terms to ensure that the risks covered are understood and that the cover meets the insured’s risk requirements.

Consideration should also be given as to how the cover fits with other insurance policies held by the insured, e.g. Directors & Officers insurance and bespoke environmental policies.

It remains to be seen how involved the underwriting process will become; in the context of a M&A transaction information required by insurers may be more readily available with warranties having been disclosed against, and with risks being priced into the transaction.

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