The rise of sustainability challenges for Directors and Officers

02 September 2025

Key takeaways:

Climate-related litigation is increasing, with 233 new cases filed in 2023
The regulatory landscape is shifting, with more focus on sustainability-related disclosures and standards
Insurers are taking sustainability disclosures into account for D&O insurance
Greenwashing is a rising D&O liability risk

The nature of corporate accountability is changing. While corporate scandals have dominated the Directors and Officers (D&O) landscape over the past two decades, greater emphasis is being placed upon a company’s impact on the environment.

As consumers, employees, activists and shareholders apply pressure to companies around how they treat nature and climate change, directors and officers must prepare for a surge in Environmental, Social & Governance (ESG)-related liability claims.

The E in ESG

There’s been a sharp increase in climate change litigation over the last 15 years. In 2023, 233 new cases were filed, according to the Grantham Research Institute at the London School of Economics¹. This took the total number of climate litigation cases to 2,666 Since the signing of the Paris Agreement in 2015.

While the US is home to the highest number of documented cases – 1,745 in total of which 129 were filed in 2023 – the UK is in second place, with 139 cases, including 24 filed in 2023.

These cases can be very damaging and incredibly expensive. As an example, one of the more high-profile cases is the 2015 Dieselgate scandal, where VW was found to have installed devices to cheat emissions tests on its diesel vehicles.

This affected 11 million vehicles worldwide, including almost 1.2 million in the UK, where it was ordered to pay £193m to drivers after it settled a High Court claim in 2022². It had already paid out more than £26bn worldwide and seen its share price fall by nearly 30% in the days following the revelation.

Taking action against the state

Governments are often targets for legal action around climate change. In Spain, residents of As Conchas have launched court action against national and region authorities. They argue that mismanagement of pollution from years of intensive pig-rearing in Galicia has put their health at risk and made life in the community unfeasible³.

Further north, in the case of KlimaSeniorinnen v Switzerland⁴, the European Court of Human Rights ruled that Switzerland had failed to protect its citizens from the serious adverse effects of climate change on health and quality of life. This ruling highlights the growing global recognition of climate change as a human rights issue and the responsibility of governments to safeguard their citizens against its impacts.

Regulatory shift

Alongside increased scrutiny from stakeholders, the regulatory landscape is also evolving with new laws and policies setting standards on reporting and risk mitigation. Globally, ESG regulations increased by 155% in the last 10 years, and by 647% since 2000⁵.

The European Union is a major driver of this, recently introducing several laws and policies to promote climate change resilience and mitigation. In the UK, the UK Sustainability Reporting Standards , which are expected to be implemented in 2026, will make sustainability a business priority.

Against this backdrop, businesses must stay ahead of evolving legislation. Adopting a robust approach to sustainability risk exposure will ensure compliance as new requirements are introduced.

Greenwashing

As the demand for environmentally responsible practices grows, so does the expectation for businesses to communicate these initiatives accurately. As these corporate communications come under increased scrutiny, new risks are emerging.

Greenwashing, where a company overstates or falsely advertises its environmental and sustainability credentials, is a rising issue for D&O insurers. Regulators and shareholders are increasingly holding companies accountable for misleading environmental, social and governance claims, with several high-profile cases bringing this issue to the fore.

An example of this is the new Financial Conduct Authority (FCA) anti-greenwashing rule, which came into force in May 2024. Designed to protect consumers from misleading claims, this FCA rule looks to guide the firms it regulates, in ensuring that any sustainability claims are factual, clear and complete.

Recycling the green claims

Coca-Cola, Danone and Nestle hit the headlines in 2023 when a legal complaint was filed against them to the European Commission over misleading claims that their plastic water bottles were ‘100% recyclable’ and ‘100% recycled’⁶. The European Commission subsequently announced that Coca-Cola would remove any misleading claims from its packaging and that compliance would be rolled out across other major bottling companies in the EU⁷.

Fast fashion claims

Fast fashion is another area where greenwashing claims are commonplace. In 2022, the Competition and Markets Authority⁸ launched investigations into three fashion brands – ASOS, Boohoo and Asda – with its interim chief executive, Sarah Cardell, saying she wouldn’t hesitate to take enforcement action, through the courts if necessary, if they were using misleading eco claims. The investigation led to the three companies signing formal agreements to use only accurate and clear green claims and the publication of a compliance guide for fashion retailers⁹.

Greenhushing, an emerging practice

On the other side of the coin, and possible to counter the greenwashing accusations, a practice known as greenhushing has emerged. Rather than overstate environmental credentials, greenhushing occurs when companies refrain from making public sustainability commitment in response to criticism over past claims, or due to fear of a backlash from either side of the sustainability debate.

But rather than protect an organisation, keeping quiet can be just as damaging as greenwashing. A 2022 report by consultancy South Pole¹⁰ found that one in four businesses had no plans to talk about their science-aligned climate targets. As well as making it harder to scrutinise corporate climate goals, this limits knowledge-sharing, resulting in less ambitious targets and missed opportunities to collaborate.

Making the right statement

Accurately reporting sustainability initiatives and goals is essential to avoid legal action, scrutiny by a regulator and reputational damage. But, as many companies lack the resources and expertise to meet these reporting demands, it’s not without its challenges.

Ensuring that any sustainability statements are backed up with verifiable data, measurable goals and, above all, transparency is key. Greenwashing claims can be a significant focus for lawyers, with legal defence costs substantial, even where directors are not ultimately held liable.

D&O insurance can help cover these situations but, to avoid legal action, directors and officers must take extra care that every public statement about sustainability is valid and can withstand scrutiny.

Take cover

As sustainability risks increase legal and financial exposures, D&O insurance is becoming more important. Cover protects directors and officers from personal liability arising from their roles, which can include legal action over climate change or greenwashing.

Sustainability and climate-related risk are significant financial and reputational factors for directors and officers, especially as regulations increase the need for detailed disclosures. Understanding exposure and keeping on top of regulatory requirements can help businesses mitigate risk and capitalise on the opportunities.

Broker beware

As Environmental, Social, and Governance (ESG) factors become integral to business operations, brokers must navigate their impact on client responsibilities.

Some insurers, may require the disclosure of relevant sustainability information for certain products, including D&O.

The level of risk – and the amount of sustainability information required – will depend on the product and the industry sector. For instance, due to the level of regulation and climate change disclosure in the energy and power sector, a D&O insurer would expect a higher level of detail around sustainability than they would for a retail client.

Failure to provide adequate sustainability information can lead to claims being denied, potentially resulting in negligence accusations against brokers under their Professional Indemnity (PI) policies.

Brokers also face risks related to sustainability, such as recommending inappropriate coverage or providing inadequate advice due to insufficient sustainability knowledge. As sustainability regulations evolve, these risks grow, underscoring the importance of training and maintaining thorough records. Partnering with insurers that have strong sustainability expertise can help brokers refine their strategies and stay informed about market changes.

Training on sustainability matters and the cover available can help to keep knowledge up to date to reduce these risks. Additionally, as this is an emerging area of risk, it’s also prudent to ensure that appropriate records are kept. All key communications should be kept in writing and clarification must be provided to clients on cover for sustainability risks.

Insurers can help too. Partnering with one with strong sustainability underwriting expertise can improve a broker’s sustainability strategy and help them stay on top of changes in both the sustainability and the insurance markets.