EIOPA publishes three-year plan on sustainable finance integration

Written by Natalie Tuck

07/12/2021

The European Insurance and Occupational Pensions Authority (EIOPA) has published a three-year plan on how to integrate sustainable finance across its own work.

Today, 7 December, the authority will also host a Sustainable Finance Roundtable, which will see representatives from supervisors, industry, consumer organisations and academia meet to discuss society’s resilience to sustainability risks, the role of insurers and pensions and EIOPA’s work in this area.

EIOPA said that sustainable finance remains one of its top priorities and the focus of its work will continue to be evidence-based and aims to help insurers and pension funds, as managers of large parts of society’s risks and important long-term investors, to strengthen their roles in mitigating and adapting to the risks posed by climate change.

As part of its three-year plan, from 2022-2024, EIOPA has outlined its key areas of activity. The first is the integration of sustainability risks in the prudential framework of insurers and pension funds by developing proposals for supervisory reporting of climate risks in Solvency II, analysing prudential treatment under Solvency II of assets and/or activities associated with environmental and/or social objectives.

EIOPA also plans to report on underwriting practices and prudential treatment of the integration of climate change-related adaptation measures in non-life insurance products.

The regulator is also focusing on the consolidation of the macro/micro-prudential risk assessment of sustainability risks in tools and methodologies and will conduct analysis on physical risk following earlier analysis on transition risk. It will also develop methodological principles of climate change insurance stress testing.

Promotion of sustainability disclosures, will also be a key area of focus, as will the promotion of a sustainable conduct of business framework by providing guidance on disclosures under the Sustainable Finance Disclosure Regulation and the Taxonomy Regulation, as well on the application of the sustainability-related provisions in the insurance sales process and advice to the European Commission on measures to address greenwashing.

In addition, EIOPA will support supervision of sustainability risks and supervisory convergence in the EU by issuing application guidance and conducting a pilot exercise on the supervision of the use of climate change risk scenarios in ORSA, conducting cost and past performance analysis of sustainability products and providing guidance on the supervision of ESG conduct risks, including greenwashing.

It will also address protection gaps by completing the dashboard on insurance protection gaps for natural catastrophes, analysing consumers’ behaviour and contractual terms and conditions with regards to natural catastrophe insurance coverage. Furthermore, it will promote of the use of open-source modelling and data in relation to climate change risks by analysing opportunities for the use of the open source modelling tools for natural catastrophes and developing ways to improve the collection of uniform and comprehensive insured loss data.

At the same time, EIOPA is launching a pilot exercise on climate change adaptation in non-life underwriting and is inviting interested insurers to join. The exercise will help EIOPA to assess the appropriateness of the prudential treatment of climate-related adaptation measures in the technical provisions and solvency capital requirements for non-life underwriting risks under Solvency II.

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