Ahead of the delayed COP26 meeting in Glasgow in 2021, organisations including the Bank of England, the Prudential Regulation Authority, EIOPA (European Insurance and Occupational Pensions Authority), the International Association of Insurance Supervisors, and the New York Department of Financial Services have all dialled up the regulatory heat in 2020. Moreover, it seems increasingly inconceivable that widespread mandatory reporting of climate risks is not far around the corner in many markets – particularly with the growing impetus behind the TCFD (Taskforce for Climate-related Financial Disclosures) framework, as illustrated by the UK joint regulator and government TCFD Taskforce’s interim report and accompanying roadmap signalling the intention to make TCFD-aligned disclosures mandatory across the economy by 2025, with a significant portion of mandatory requirements in place by 20231.
Adapting from experience
Insurers have, for as long as weather and natural catastrophe models have been in existence, always been in the forefront of the commercial assessment of climate risks. Mostly, this has been for underwriting purposes.
The challenge today is wider than that – further building on what some companies have already started with stronger ESG (environmental, social, governance) foundations. It puts climate centre stage in business strategy as the global challenge of achieving a just and orderly transition to a low carbon, climate resilient economy increasingly dictates that climate considerations are pivotal to financial decision-making. The bottom line is that climate risk is financially material and becoming more so.
As the articles in this special Insurer Solutions Climate Risk Series demonstrate, a strategic response is required that will need to consider the breadth of an insurance business across people, risk and capital.