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Clearing the air

Changes in ESG-related D&O risk in a new U.S. presidential administration

Medioambiental|Financial, Executive and Professional Risks (FINEX)

By John M. Orr | April 16, 2021

With the change in the U.S. presidency, expect that the administration will view ESG risk and investment in a different light.

With changes in U.S. presidential administrations, reviews of the prior administration’s policies, as well as actual policy changes, are commonplace. In our August 2020 article on regulatory scrutiny of environmental, social, and governance (ESG) investment options in employment benefit plans, we reported that the U.S. Department of Labor (DOL) under President Donald Trump had cautioned plan fiduciaries not to prioritize social concerns over the profitability interests of their employees when offering ESG investment options in plans.1 Consistent with campaign promises to address climate and environmental risk more broadly, however, now-President Joe Biden’s administration is looking at ESG risk and investment in a different light.

In March, the DOL announced its intention to revisit ESG rules implemented by the previous administration just days before President Biden took office. Following consultation with a variety of stakeholders, including asset managers, labor organizations, consumer groups, among others, the DOL declared in a public statement: “Until it publishes further guidance, the Department will not enforce either final rule or otherwise pursue enforcement actions against any plan fiduciary based on a failure to comply with those final rules with respect to an investment…”2

The DOL’s announcement was not a surprise. The Trump-era rules were not finalized until after the November election, and the incoming administration had targeted them as among the policies to be unwound. Fiduciaries who may have felt pressure from the previous administration to bypass ESG options in plans, even where such options had track records of profitability, might now feel a sense of relief. Others, however, may decide it more prudent to defer further action until the new DOL issues additional guidance. Regardless, all should remain mindful that the prior administration’s rules remain on the books and may pose a continued risk in litigation filed by plan participants and beneficiaries.

Concurrently with the DOL’s move, the U.S. Securities and Exchange Commission (SEC) announced in late February that the agency will begin a process to update its 2010 climate risk disclosure guidelines, proclaiming, “Now more than ever, investors are considering climate-related issues when making their investment decisions. It is our responsibility to ensure that they have access to material information when planning for their financial future.”3 Shortly thereafter, the SEC initiated a process toward adopting new disclosure requirements for public companies on climate change matters by issuing a request for comments on several wide-ranging issues.4

The policy differences on ESG risk and investment between the two administrations have been high profile and unmistakable. While both have set a tone to protect investors in the context of ESG investing, the Biden administration underscores that the protection should derive from the accuracy and fulsomeness of risk disclosures, while discounting purported distinctions between profitability and social value. As Acting Chair Allison Herren Lee stated in a March 15 speech on the subject:

With Gary Gensler’s Senate confirmation as SEC Chair on April 14, investors can anticipate policy consistency. At his confirmation hearing in March, Gensler affirmed that he supports additional climate-related disclosure requirements. He explained, “There are tens of trillions of investor dollars that are going to be looking for more information about climate risk,” adding, “Issuers will benefit from such disclosures.” 6

Depending on the eventual scope of regulatory updates, the SEC’s new stance is likely to affect companies across numerous industries. Organizations in sectors with a direct impact on environmental risk, from oil and gas to utilities and transportation, among others, are likely to experience heightened scrutiny. Even companies whose environmental impact may be less direct, such as retail and technology, and other organizations that rely on manufacturing and distribution of products, will need to closely evaluate their disclosures.

Liability risk flowing from alleged inaccurate or insufficient disclosures include regulatory investigations and proceedings, as well as litigation, including shareholder litigation. An often discussed form of public company risk is “event-driven” securities litigation; that is, class action litigation arising from high profile incidents – such as accidents and large scale cybersecurity events – wherein investors react to the news and a company’s stock price drops precipitously. Event-driven litigation in the context of environmental risk may emerge from numerous climate-related phenomenon, including wildfires, drought, floods, extreme weather, and the impact of operations on vulnerable ecosystems. From a social perspective, such litigation has flowed from claims related to #MeToo and inclusion and diversity (I&D) protocols.

Affected companies should continuously work with their counsel on the scope of their public disclosures. They should also confer with their directors and officers liability (D&O) insurance brokers on breadth of coverage to address associated regulatory and litigation risk. D&O insurance is generally responsive to shareholder litigation and government proceedings, but substantive and claims process-related coverage issues can arise, making policy wording negotiation a critical component of a company’s D&O renewal.


1 Orr, John, “Regulatory scrutiny of ESG investment: Are plan sponsors in the crosshairs?”, Willis Towers Watson Insights, August 19, 2020,

2 Public Statement, US Department of Labor, Employee Benefits Security Administration, March 12, 2021,

Public Statement, US Securities and Exchange Commission, February 24, 2021,

Public Statement: Public Input Welcomed on Climate Change Disclosures, March 15, 2021,

Speech, Acting Chair Allison Herren Lee, “A Climate for Change: Meeting Investor Demand for Climate and ESG Information at the SEC,” March 15, 2021,

6 Brandford, Hazel, “Nominee Gensler backs SEC climate risk disclosure,” Pension & Investments, March 2, 2021, accessed at”


Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.


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