In a collaborative report between Royal London Asset Management and Solvency II Wire, via the analysis of the climate-related public disclosures of some of the largest European and UK insurers, we evaluate the current state of climate risk integration in the European insurance Industry.
The insurance industry is uniquely positioned (and exposed) within the financial services industry in relation to climate change due to the nature of its business:
- As a major global industry, it is a contributor to carbon emissions through its operating activities and offices
- As an institutional investor, it has the power to allocate capital to more climate-aware assets and strategies, and drive and support changes in corporate behaviour through ongoing stewardship and engagement
- As a carrier of risk, insurers are further exposed to climate-related and natural catastrophe claims
The reporting and disclosure of climate risk information has been identified as one of the key components essential for tackling climate change. Owing to the growing significance of climate change in the insurance industry and the importance of reporting and disclosure, the report sets the following objectives:
- Evaluate the current state and quality of climate-related public disclosures of the European insurance industry
- Establish and evaluate current market 'best practice' of climate change management and disclosure based on reporting by some of the larger market players
Owing to the lack of standardisation of both requirements and definition of metrics, we conduct benchmarking analysis of the various forms of public disclosure of some of the largest European insurers and assess these against the broad trends in regulatory disclosures and the Solvency II public disclosures.
The main drivers requiring or encouraging insurers to focus on climate risk management can be categorised into three areas:
- Broader climate-related initiatives – for example, the TCFD (Task Force on Climate-related Financial Disclosures) recommendations that are being encouraged/required for larger institutional investors in an increasing number of countries
- Requirements from global or pan-continental bodies – such as the European Insurance and Occupational Pensions Authority (EIOPA) - likely stipulate that insurers should recognise climate related risks as part of the review of the Solvency II framework
- Expectations from national regulators and bodies – such as the climate change management requirements set by the Prudential Regulatory Authority (PRA) in the UK
The in-depth report, 'Climate Risk Management for Insurers – Benchmarking of Emerging Best Practice,' is now available. Please click the button to read more.
For Professional Clients only, not suitable for Retail Clients.
This is a financial promotion and is not investment advice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change.
Issued in December 2021 by Royal London Asset Management Limited, 55 Gracechurch Street, London, EC3V 0RL. Authorised and regulated by the Financial Conduct Authority, firm reference number 141665. A subsidiary of The Royal London Mutual Insurance Society Limited.