Ladies and Gentlemen,
I would like to extend a warm welcome to all of you joining us for this year’s Sustainable Finance Conference.
Just a few weeks ago, EIOPA held its annual conference where we discussed the risks faced by the insurance and pensions sectors in the coming years. It won’t come as a surprise to you when I say that tackling each of them require transformational transition.
The resilience of our society is at stake: whether it’s managing the growing costs of climate-induced catastrophes, or narrowing the cyber insurance protection gap, or securing dignified old-age pensions for European citizens. These are important challenges.
When it comes to the challenge of climate change, the recent COP28 showcased how difficult it is to implement global commitments for effective and deep emissions reductions. Without such reductions we will not meet the goals of the Paris Agreement.
The message is not new. Some even start calling it a 'broken record': there are gaps in the adaptation and financing of the transition. Talk is about having to ‘scale-up’ investments in sustainable green solutions and prevention measures.
To scale up in the current economic and geo-political environment is no easy task for the economy. Nor is it for the financial sector: high inflation increases the cost of claims, the returns on investment are lower, and also insurers are facing liquidity risks.
It is important that we talk about these challenges, but even more so that we remain pragmatic and focused on solutions.
And this is why I am pleased to be here with you today—to discuss where we are, what we can do to move ahead, and how we can work smarter to meet our goals faster.
From policy...
Resilient policymaking requires regulation that is future proof, actionable and coherent. And the challenge for increasingly horizontal regulation, is to account for a range of possible future outcomes, without contradicting each other and preferably building up on requirements to achieve coherent and consistent outcomes. Are we achieving this, in a sufficiently proportionate manner?
The regulatory burden on the economy and financial sector is not small. You will be pleased to hear that the regulatory efforts on sustainability risk for the financial sector are starting to come together.
Insurance and investee companies will start reporting under the Corporate Sustainability Reporting Directive. The sustainability disclosures are an opportunity to assess progress, manage risks and direct investing towards more sustainable goals. EIOPA has recently released its final advice on regulatory technical standards for the Sustainable Finance Disclosure Regulation. We will continue contributing to transparency on sustainable investments, as part of the Commission’s efforts to improve on the SFDR. We will ask our panellists today to discuss what is needed to make sustainability disclosures work in practice.
The expected amendments to the Solvency II Directive aim to strengthen requirements for climate scenario analysis and will require EIOPA to investigate how nature related risks are accounted for in the ORSA. Legislators recognize the need for appropriatene capital charges for natural catastrophe risks, and for insurers to assess the financial risks arising from the transition. These are steps we have been anticipating and we stand ready to support the industry in implementing these measures in a proportionate manner.
The Corporate Sustainability Due Diligence Directive is being negotiated and we can expect to see an increased focus on transition plans from a risk-based and due diligence perspective. It is important that the financial sector is recognized in its role to contribute to sustainability risk mitigation and adaptation.
I am sure Paul Tang will be sharing some insights on the latest legislative developments in these three areas in his impulse speech later today.
The policy efforts are the right ones, we need now to move from policy to practice.
… to practice
One of the areas where we have been moving to practice is in tackling insurance protection gap for natural catastrophes.
Our nat cat dashboard, which we issued in 2022 and which we have just updated still shows that less than one quarter of natural catastrophe losses in Europe is insured. The extent of damages to properties and to livelihoods is becoming a chronic physical risk problem for the insurance sector. And as climate induced events become more severe, and insurance more costly, this protection gap will only widen.
The smaller the progress on mitigating GHG emissions, the more we will need to do in terms of adaptation. We all know that prevention costs less than a cure. And this is why we need investments in adaptation measures.
The societal role of insurers has never been more important. At the same time, the role of supervisors has never been more evident.
It is the role of supervisors to preserve financial stability by improving the sector’s overall capacity to handle the economic consequences of NatCat events. Supervisors have the explicit mandate to secure consumers are protected and fairly treated. Supervisors can also support financial inclusion and market development, by making regulatory efforts for access to affordable and appropriate insurance by underserved segments of society.
EIOPA has been analysing factors that hinder consumers in buying insurance coverage against natural catastrophe risks, and we are developing tools to raise consumers’ risk awareness, building on our work on impact underwriting. Based on the evidence of the gaps and their root causes, EIOPA is engaging with supervisors and governments on potential policy measures to be taken to reduce protection gaps. We are also thinking of how potential measures at EU level could look like. Adaptation and prevention measures must be at the core of these shared resilience solutions.
The recent publication by the IAIS puts into evidence the areas of activity in which supervisors can and shall engage to tackle the natural catastrophe protection gap. You will hear more about this from my distinguished colleague and our guest speaker Shigeru Ariizumi,
A second area where we are moving to practice is in securing the management of sustainability risks by insurers and occupational pension institutions.
Solvency II already imposes requirements on insurers to manage sustainability risks as part of the ORSA, and the negotiations on the Directive will likely further cement these.
Starting next year, EIOPA will monitor the implementation of the insurance industry’s sustainability risk assessments as part of ORSA. We will be engaging with supervisors on how undertakings have been implementing transition and physical risk assessments in their ORSA, and where relevant, how they performed dedicated scenario analysis. This will lay the basis for identifying good practices, and potential guidelines to support the analysis of financial risks related to the transition.
Our advice on the IORPII Directive to the Commission this year was to require IORPs to likewise account for sustainability risks and the resulting adverse impacts in their investment decisions. As significant institutional investors, pension funds have the power to further the green transition.
You may already have seen our recently released consultation paper on the prudential treatment of sustainability risks – a milestone. We look forward to the views from stakeholders on our proposals. We will also further develop our approach to nature-related risks, and at today’s conference you will hear more about why nature-related risks matter for insurance.
You will also hear more today about the coordinated climate scenario analysis that will be conducted the ESAs, ECB and ESRB in 2024 which can shed further light on risks and opportunities for the climate transition for the financial sector - to support the transition financing needs.
A third area of activity is the sharing of knowledge and data on catastrophe risks. Open access to data and models are necessary to improve sustainability risk assessment. As a centre of excellence in data and cat modelling, EIOPA will continue support the European supervisors and insurers with expertise, studies, tools and data. This will enable better assessment and supervision of catastrophe risks. EIOPA is releasing today an open-source Catastrophe Data Hub to facilitate the view of European insured loss and exposure data related to catastrophe risks. You will hear more about this initiative during a topical session later today.
And fourth, we need to progress in securing trust in the transition. Address greenwashing is an excellent antidote against inreasingg climate despair and key to securing progress in the transition.
EIOPA is working with high priority in identifying how to support the reliability of undertakings green claims, at entity and product level. Where commitments are made, they need to be honoured. EIOPA will be publishing an opinion soon setting expectations on how supervisors should look at sustainability claims, and we are working on guidance for sustainable product identification.
I look forward to hearing Carmine Di Noia’s views on how due diligence and business conduct can incentivize not only the management of financial risks, but also the impacts to society.
Coming to the end of my remarks, I hope I have been able to show you how through concrete action in various areas, EIOPA aims for the insurance and occupation pensions sectors to continue to protect society for the long term. What matters now is swift implementation.
I wish you an enjoyable conference, giving you inspiration to progress in your efforts for a sustainable financial sector in a sustainable environment.
Details
- Publication date
- 14 December 2023