Insurers step up on TCFD alignment with $5trn UN initiative

The 16 insurers represent some 10% of global insurance premiums

Insurers with $5trn under management have got together with the UN to develop tools to help them align with the recommendations of the Taskforce on Climate-related Financial Disclosures.

The 16 insurers – all signatories of the Principles for Sustainable Insurance – represent some 10% of global insurance premiums and come from across Europe, Asia, Australia and North America (see below).

They will work with UN Environment to develop “a new generation of risk assessment tools designed to enable the insurance industry to better understand the impacts of climate change on their business”. The initiative mirrors existing pilots UN Environment has undertaken with the banking and investment industries.

The TCFD’s recommendations centre around governance, strategy, risk management and metrics & targets.

The insurers will “make use of the latest climate science, including some of the most advanced, forward-looking climate scenarios available”, covering both physical and transition risk considerations, but with a focus on their insurance activities rather than their investment portfolios.

Ann Sommer, CEO of Länsförsäkringar Sak said the pilot would involve “participating in the creation of a new standardisation of climate risk information and climate risk modelling in the financial sector”.

“The opportunity to exchange experiences and get a better understanding of the TCFD recommendations and climate risks in a global perspective together with other leading insurance companies is of course very valuable,” she added.

This is far from the first move by the insurance industry and its regulators to address sustainability and climate risk. The Principles for Sustainable Insurance were launched in 2012, and since then many insurance companies have made commitments to reduce or halt financing and support for coal-heavy firms.

Most recently, Italy’s Generali adopted a policy last week to end new coal insurance. The pledge is less ambitious than some others, like Allianz, Axa and Zurich, in that it doesn’t cover existing coal projects. The commitment comes after months of campaigning from NGOs, who are now turning their attention to AIG, Chubb and Hannover Re, among others.

This summer, Zurich became one of the first institutions in the world to have invested 1% of its assets in ‘green’ – a challenge put to PRI signatories by Christiana Figueres last year. Generali is currently in talks to buy sustainability investment house Sycomore in a bid to boost its ESG offering.Recently, the International Association of Insurance Supervisors (IAIS) released guidance on climate risk, stating: “It is imperative that all insurers consider their exposure to climate risks, regardless of size, specialty, domicile, or geographic reach, and seek to build resilience to such risks where appropriate.” It cited the TCFD as a driving force behind its move to publish the document.

Meanwhile, EU lawmakers are currently in the process of thrashing out legislation that will force insurance companies – among others – to disclose how they assess sustainability in their decision-making.

In the UK, the Prudential Regulation Authority, last month published a draft Supervisory Statement laying out potential new rules requiring insurers to have board-level oversight on climate risk, and evidence of a “credible plan or policies in place for managing exposures”.

In Italy, supervisor IVASS passed regulation in the summer forcing insurance firms in the country to consider ESG in their activities.

In France, the City of Paris passed a motion calling for insurers to stop insuring and investing in fossil fuels, followed a couple of months later by a similar proposal in the US, which was passed by the San Francisco Board of Supervisors, the legislative government body. Also in the US, California’s outgoing Insurance Commissioner, Dave Jones, has continued his work to force relevant insurance companies to disclose their exposure to climate change risk.

“For generations, the insurance industry has served as society’s early warning system and risk manager by understanding, reducing, pricing and carrying risk,” said UN Environment Chief, Erik Solheim. “Its message now is loud and clear: climate change risk is intensifying and is a serious threat to the insurability of communities and economies around the world.”

Insurers involved:
Allianz (Germany), Axa (France), IAG (Australia), Intact Financial Corporation (Canada), Länsförsäkringar Sak (Sweden), MAPFRE (Spain), MS&AD (Japan), Munich Re (Germany), NN Group (Netherlands), QBE (Australia), Sompo Japan Nipponkoa (Japan), Storebrand (Norway), Swiss Re (Switzerland), TD Insurance (Canada), The Co-operators (Canada) and Tokio Marine & Nichido (Japan).