Boundaries - whether geographical, legislative or behavioural - are often where the conflicts arise and where focus may therefore usefully be directed in scenario planning.
A recurring theme that we are currently seeing is the redrawing of the boundary and shift of responsibility from government to the public sector, which has a direct impact on insurers. One example is embodied in the Protect Duty Bill, raised in this year’s Queen’s Speech, which begs the question: who should be responsible for protecting the public against terrorist attacks?
As the ESG canopy extends ever wider, it is also interesting to consider where the boundaries of the environmental, social and governance silos overlap. In previous thought leadership, we have looked at mapping critical uncertainties and how they might interact, as sometimes the big ticket issues combine in unpredictable ways. We have seen this with the impact of Russia’s invasion of Ukraine on climate change, where the rush to disconnect from Russian oil and gas could push back the work done by the environmental lobby on reducing dependence of fossil fuels. Another nexus now being flagged is between climate change and an increased threat of social unrest and potentially a future terrorist threat.
Climate change also brings further queries over the public/private divide, as climate activist litigation continues to challenge where responsibility lies between governments and business.
The Protect Duty
Following the Home Office consultation in 2021, in the wake of recent terrorist incidents, the draft Protect Duty Bill aims to improve public security through the creation of a legislative duty to protect the public against terrorist attacks. The goal is to create a culture of security, with a consistency of application and a greater certainty of effect.
The wording is still under consideration but is likely to be targeted at those who own or operate at publicly accessible locations such as stadiums, hotels, pubs, high streets, shopping centres, schools, hospitals, places of worship, parks and other open spaces.
The proposal is that the duty should apply to venues that have a capacity of 100 or more people. In addition, the duty would also extend to organisations employing 250 or more staff across a number of smaller outlets, such as supermarkets and petrol stations, where there is significant or regular public footfall and engagement on a routine basis.
The duty would require organisational preparedness and reasonably practicable security measures. An inspection regime would be needed to ensure the requirements are met and to provide specific support and advice. A new offence is proposed for persistent non-compliance and the penalties would be primarily based on fines.
The Climate-Security Nexus
Keeping with the terrorism theme, boundaries are also shifting to highlight an overlap with climate change. A recent study by the University of Maryland considers climate change as a threat multiplier, with the potential to increase the likelihood of violent conflict. The research looks at climate change as an indirect contributor to terrorism; as an ideological driver of terrorism; and as a means for terrorist exploitation to control or coerce populations. Climate change is found to be “a predominant destabilising force that fosters an enabling environment for violent extremist organisations”. That link increases where climate is threatened and inhabitants are highly dependent on that environment for their livelihoods.
Pushing the boundaries even further, one of the rapid reviews within the Maryland report (Boyd, Marcus: A Climate of Terror? Climate Change as a Potential Ideological Driver of Terrorism) flags a link between environmentalism and the Anti-Technology Movement, suggesting that the latter could also represent a future wave of terrorism. As government and business look to transition to a more digital and more sustainable society, we must be aware of destabilising forces pulling in the opposite direction.
Climate Activist Litigation
As ESG strategies respond and step up from a nice-to-have to front-and-centre in the boardroom, so too has the opportunity for climate activists to convert actions against governments to actions against individual companies. This can be seen in the thread of international cases that started with Urgenda, where 886 Dutch citizens sought tougher action against climate change by the Dutch government. Royal Dutch Shell soon thereafter found itself accused by activists of not doing enough to reduce its carbon emissions.
There is a template emerging for action against government to be followed by targeting the private sector. This year, Friends of the Earth and other activists have been partially successful in a judicial review against the UK government in relation to its Net Zero Strategy. In March 2022, ClientEarth commenced legal action against Shell’s board for alleged breach of legal duties by failing to implement the change necessary for the transition to net zero and commitment under the Paris Agreement.
The pressing question is whether we will now see this activism extend beyond fossil fuels to other sectors. Awareness of ESG-washing should be right at the top of the agenda for all insurers, insureds and their supply chains.
Once again, however, the picture is not clear-cut and we are seeing evidence of an ESG backlash muddying the waters. In the US, a number of states are adopting legislation aimed at limiting the ability of state governments to do business with entities rejecting industries based on a failure to meet ESG criteria. The risk here is that ESG is becoming a mythical push-me-pull-you, with social and political factors pulling in opposite directions.
Where next?
One practical solution to all of the above issues is to break the silos and collaborate. Collaborative action is essential to create a coherent ESG strategy and meet the ever-rising expectations of governments and society. The insurance industry has a huge part to play in the three way discussion needed between governments, businesses and regulators, as it provides an international understanding and experience. The recommendations of the Maryland research includes a specific call for such stronger partnerships. Collaboration is the key.
This article was first published in Insurance Day on 28 September 2022.
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