Solvency II News: Climate risk management for insurers

Newly published research analysing the climate risk management and disclosure practices of European and UK insurers highlights inconsistencies in climate risk reporting.

The research, Climate Risk Management for Insurers – Benchmarking of Emerging Best Practice, a collaboration between Solvency II Wire and Royal London Asset Management, compares the climate-related public disclosures of 20 of the largest insurers in the region.

Comparison of several climate-related themes, including net-zero targets, climate VAR and Weighted Average Carbon Intensity (WACI), reveals the extent of  the challenges insurers face in selecting and defining meaningful and measurable objectives for climate-related risk management and reporting.

Climate risk reporting in the SFCRs

In addition to examining documents such as annual reports and sustainability reports, the research also compares climate-related information published in the insurers’ SFCRs (Solvency and Financial Condition Report).

Text search analysis of over 12 thousand SFCRs conducted by Solvency II Wire Data (a database of the Solvency II SFCRs) reveals that in 2020 only about one quarter of reports contained key climate related terms such as ESG and carbon footprint.

The research calls for further integration of climate-related information in the SFCRs.

Insurers use of green investments

The research also examines the use of green investments by insurers, noting the lack of consensus on definition and approach.

According to the report: “Approaches vary from reviewing the current investment strategy and implementation approach, to ensure that environmental risks are being considered as part of a broader ESG framework, and potentially looking to apply negative screens against certain sectors or high emitters.”

A number of insurers have also been issuing sustainability focused debt that includes “some form of commitment to use the proceeds to finance environmentally supportive activities or assets.”

Benchmarking insurance climate risk management

By benchmarking the climate risk management and disclosure practices of some of the largest insurers in the region, the report contributes towards understanding the insurance climate risk management landscape and defining the challenges that insurers face in fulfilling their obligation towards meeting their climate commitments.

Climate Risk Management for Insurers – Benchmarking of Emerging Best Practice is available to download here.

Listen to the webinar: Climate risk management for insurers