While everyone may be talking about potential risks associated with generative artificial intelligence, a new directors & officers report from Allianz highlights a range of current concerns associated with environmental, social, and governance issues.

Agree or not with the premise of, or attention to, ESG as a part of corporate management, companies’ leadership are considerably exposed to investigations, enforcement actions, and potential fines and penalties as ESG reporting mandates grow in number, said Allianz Commercial in its D&O insurance report.

“Not every stakeholder holds the same view on an issue or the same view as to what actions directors should take,” says David Ackerman, head of global financial lines claims at Allianz Commercial, in a statement. “In a world that is becoming increasingly polarized, politically and socially, the very need for directors to evaluate and address the impact of various ESG factors on corporate value creates risk that claims will be made, by activist shareholders or other motivated stakeholders, on either or both sides of any given issue.”

Allianz acknowledged the frustration from organizations and stakeholders regarding the definition of an ESG issue. One example, Allianz said, is whether privacy lands within ESG as a social concern. Furthermore, critics have argued the issues within ESG are already a part of director’s duties, and no alternative governance is warranted. The lack of clarity and the multiple interpretations open D&Os up to significant risks, prompting Allianz to conclude ESG claims are “here to stay.”

Interestingly, some of the brainstormed risks surrounding the legal and ethical use of generative AI could be seen as having overlap with ESG. The use of the AI could indeed positively effect an organization’s business models and processes. However, challenges include the responsibility of managing bias and misinformation, privacy concerns, and proper governance.

Litigation against AI companies has already focused on privacy risks and copyright law violations, and additional litigation could include securities claims, intellectual property claims, breach of fiduciary duty claims, misrepresentation claims, and shareholder and derivative lawsuits, Allianz said.

“AI’s potential to create competitive advantages is exciting but there are also challenges with its adoption that companies should consider, such as threats to cybersecurity, increased regulatory risk, unrealistic investor expectations about its capabilities, as well as managing misinformation,” said Hannah Tindal, a regional head of commercial D&O at Allianz Commercial.

Overall, the 2024 D&O market outlook will likely remain competitive but that could change, Allianz concluded. Litigation settlements have been rising, as has the cost to defend claimants. Additionally, inflation, regulatory scrutiny, and litigation funding are among factors that can impact the line of business. New carriers that have entered the market may not have the means to withstand these issues, Allianz added.

This article was originally published by Insurance Journal. Reporter Chad Hemenway is the National editor of Insurance Journal.