William & Mary Environmental Law and Policy Review
Abstract
Environmental insurance is something that is becoming increasingly important in the corporate sphere. Similarly, there has been an uproar in the Environmental, Social, and Governance (ESG) movement. ESG ratings are becoming the norm in corporate America as a way to quickly assess a corporation through using a variety of factors. This Note will argue that a company’s ESG rating should be a main consideration when insurers are underwriting their environmental insurance policies. This Note will argue that by linking a company’s ESG ratings with their environmental insurance, it may lead to more sustainable practices and accountability from corporate America.
Part I of this Note will dive into the background of environmental insurance, including the history of environmental insurance, the definition of environmental insurance, and the different types of coverage that are offered under the umbrella of environmental insurance. It will also discuss ESG ratings, what they are, and how they are calculated. Finally, Part I of this Note will analyze the importance of having environmental insurance and how it is able to promote sustainability and allow corporations to take accountability for their actions and the effects of those actions on the environment. Part II will dive into the main argument of this Note discussing why ESGs should be tied to environmental insurance ratings. It will analyze how making this change will incentivize corporations to lower their ESG ratings, which will be good not only for the company but also for the insurer. Within this Part, this Note will also discuss how this increases the alignment between a company’s financial goals and our overall climate goals. This will also allow for a more accurate analysis of a company’s risk assessment and increase market transparency. Part III will discuss counter-arguments such as the lack of standards surrounding ESG ratings and the vague language of its definition. The high potential for greenwashing and the unintended consequences that many high-risk industries face if ESGs were to factor into the underwriting process.