Law firm Sparke Helmore has flagged the risk of “greenwashing” as the Australian insurance industry faces growing environment, social and governance (ESG) pressures from regulators, activist shareholders and consumers.

“With the increasing focus on ESG in the insurance industry, insurers may be vulnerable to greenwashing, and need to be particularly mindful in respect of pledges and representations made in respect of climate change policies, solutions and products,” Commercial Insurance Practice Partner Mark Doepel told insuranceNEWS.com.au.

“This need for caution is further exacerbated by increased regulatory scrutiny and prosecutions, the Australian Government’s stated intention of plans to introduce mandatory sustainability and ESG reporting requirements for large Australian entities and the global rise of activist litigation.”

The Australian Competition and Consumer Commission and the Australian Securities and Investments Commission (ASIC) are cracking down on greenwashing.

ASIC defines greenwashing as the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical.

On Wednesday ASIC released a short report detailing the 35 interventions it has made in response to its greenwashing surveillance activities from last July to March this year. In one of the interventions the corporate watchdog lodged civil penalty proceedings against Mercer Superannuation.

Mr Doepel says given the strong focus on ESG challenges within the insurance industry, major domestic insurers and the broader industry appear to be on the front foot in dealing with these challenges.

He notes the Insurance Council of Australia has worked with Boston Consulting Group to launch the “Towards a Net Zero and Resilient Future” roadmap for the industry last year. The roadmap outlines the way insurers can achieve net zero emissions for their operations by 2030 and across the entirety of insurers’ activities by 2050.

He says major domestic insurers have also for several years been implementing sustainable investment programs, engaged in partnerships with government and industry to develop a more climate resilient nation and have held themselves accountable to self-imposed climate change policies and targets.

Mr Doepel’s comments come as Global Insurance Law Connect (GILC) – a network of boutique law firms that includes Sparke Helmore – released its annual Risk Radar report today.

The report focused solely on the impact of ESG on the insurance industry globally.

“We have focused on this area because it has increasingly become a national and international priority, and we recognised that it had become a dominant theme across almost all geographies and insurance areas,” the GILC board says in the report.

“Put simply, this is the single most critical insurance and legal issue of our time, making it a natural focus for the Radar report this year.”

The Australia section of the report lists environment/climate change, social inflation and governance in relation to the Modern Slavery Act as key ESG issues.

“It is expected ESG concerns will continue to put downward pressure on margins with frequent local natural disasters forcing insurers to raise premiums to accommodate spiralling claims volumes and exposures,” the Australia commentary from Sparke Helmore says.

“Inflationary pressures resulting from the higher cost of living and supply chain issues have significantly increased replacement costs for insureds.

“Insurers have also been subject to an increasing regulatory burden including the introduction of modern slavery laws and mandatory disclosure requirements, and with these laws currently under review, increases in non-compliance penalties are anticipated

The report also covers major economies the US, China, the UK and other European markets.

Click here for the report.