Insurance regulators back climate risk disclosure
Insurance regulators and supervisors from 16 jurisdictions around the world have jointly backed a set of recommendations on how companies in the sector should disclose the climate-related risks affecting their businesses. The signatories said that as risk managers, risk carriers, and investors insurance companies played “a cornerstone role” in the management of climate-related risks and opportunities. (IPE, 26 July). The group includes the California Department of Insurance, the Bank of England Prudential Regulation Authority and the Monetary Authority of Singapore. (Energy Live News).
The insurance supervisors declared ‘climate change is ‘one of the most serious long-term challenges for the insurance sector.’ In a statement organised by the Sustainable Insurance Forum they said the TCFD’s recommendation for organisations to use scenario analysis to assess risk was particularly welcome. “Scenario analysis is a critical tool to understand how the insurance sector could be impacted by both physical climate impacts as well as the transition to a low-carbon and climate resilient economy,” the document reads, “Implementation of the recommendations is now key.” (Business Green)
The group ‘identifies four key areas where supervisors play a role in supporting uptake, and thereby strengthen insurance markets:
- By raising awareness of the TCFD recommendations among regulated firms.
- By working with market actors to build capacity and share tools, including for the development of scenarios and metrics.
- By incorporating relevant insights from climate disclosures into routine supervisory activities.
- Finally, by supporting the Task Force recommendations, or appropriate aspects of it, as a best practice to be considered by insurers in their financial disclosures.’ (UNEP Press Release, Sustainable Investment Forum statement and signatories list (pdf))
California Insurance Commissioner David Jones is one of those involved, and Environmental Finance report that he ‘was threatened with legal action from 12 Republican attorney generals who oppose his fossil fuel investments disclosure initiative.’ “Last year we asked insurers if they would divest, how much coal they had divested already or will commit to divest, and if not, why not?” says Jones. “More than a quarter of insurers have pledged to refrain from future investments in coal and I believe there will be substantial progress going forward.” Despite only requiring voluntary divestment so far, Jones has faced severe criticism and legal challenges from outside his state. First came a letter from 12 Republican state attorney generals and the governor of Kentucky on 19 June, which said that legal action against Jones was “a certainty” based on their argument that “the Constitution’s Commerce Clause prohibits illegitimate state regulations aimed at burdening or discriminating against commerce from other states.” (‘Bring it on’: California commissioner bullish on fossil fuel divestment, Environmental Finance, 17 July). E&E News since reported on 28 July that ‘In a letter to Republican officials in 13 states, Jones yesterday refused to halt a California program that requires insurance companies to disclose investments in fossil fuels and utilities and encourages them to sell off coal holdings.’
Swiss Re have published a report ‘Lights Out: The Risks of Climate and Natural Disaster Related Disruption to the Electric Grid’ which says that “Climate change is expected to increase the incidence and severity of extreme weather conditions, putting the structural integrity of America’s aging electric infrastructure under greater strain. … A combination of higher average temperatures, more destructive storms and hurricanes, and increased risk of wildfire will ultimately worsen risk exposure for utilities.” (Business Insurance, 26 July)
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