EU insurance regulator takes first step on nature-related risks

EIOPA aims to set out supervisory expectations on the management of nature-related risks and impact.

The European Insurance and Occupational Pensions Authority (EIOPA) has revealed plans to establish supervisory expectations for the management of nature-related risks and impacts for the insurance industry. 

The regulator flagged the proposal in a staff paper published this week, which explored nature-related risks and impacts for the industry. A spokesperson for EIOPA told Responsible Investor this marks its first step into the space, and will be used to engage the industry and supervisors on the topic. 

Wednesday’s paper said supervisors and regulators will increasingly have to assess nature-related physical and transition risks transmitted to the (re)insurance industry’s investment and underwriting portfolios as part of their mandates to protect consumers and preserve financial stability.

To do so, they will need to integrate the consideration of nature-related risks in prudential and conduct supervisory frameworks, as well as contribute to the establishment of methodologies and provide guidance on the prudential risk assessment of nature-related risks. 

To play its part, and as part of its sustainable finance strategy, EIOPA said it aims to establish supervisory expectations for the management of nature-related risks and impacts for the insurance industry in a step-by-step approach. 

“We’re initially focused on risk assessment supported by disclosures and analysis,” the person told RI. “This will form the basis for conducting materiality assessments for nature-related risks and impacts by supervisors and by undertakings through their own risk and solvency assessments.” 

EIOPA will then determine whether supervisory measures are required. 

As part of its work, the regulator is engaging with the NGFS, which has a nature taskforce, and the European Systemic Risk Board in dedicated work streams. It is also monitoring developments and initiatives by other stakeholders, including the Taskforce on Nature-related Financial Disclosures (TNFD), which this week published the final beta version of its disclosure framework.   

The report also called on regulators to consider addressing opportunities to provide conservation and restoration incentives through investment and underwriting requirements, and to contribute to identifying public-private risk-transfer solutions.

In addition, it suggested that insurance activity could aim “in a risk-based manner” to underwrite losses for companies that have nature-positive impacts “irrespective of whether the insured risk is related to the nature-positive activity”. 

RI reached out to Europe’s two other financial supervisory authorities – the EBA and ESMA – asking if they were undertaking or planning any initiatives on nature-related risks. They had not responded at the time of publication.

EIOPA, which is also the EU’s workplace pension fund regulator, told RI it is not looking at nature-related risks for pension funds in particular “for the time being”.

Banque de France biodiversity impact 

In related news, Banque de France has teamed up with the data provider Iceberg Data Lab to calculate the impact on biodiversity of its equity portfolios.

“This approach contributes to the action taken by the Banque de France to better take into account the risks and dependencies linked to biodiversity in the financial sector,” the central bank said in a statement.

Banque de France has been a key mover in the nature space. In 2021, it conducted a study that assessed the static impacts and dependencies of the French financial system. It is also co-chair of the NGFS’s nature taskforce.