Home Knowledge (Re)insurance – Regulatory Initiatives and Sustainable Finance

(Re)insurance - Regulatory Initiatives and Sustainable Finance


Environment, Social and Governance (ESG) are criteria increasingly used by companies in decision making across several different areas. These criteria are now used as a way of assessing a company’s performance from an investor point of view and to avoid companies that might pose a greater risk due to their policies on the environment or sustainability. Each one of its elements, and particularly the first two, are core components of the “sustainability” agenda.


The concept of sustainability has various drivers but a big impetus is the need to tackle climate change.  Building the concept into a (re)insurer’s business affects both sides of the balance sheet – e.g.  potentially moving towards more selective underwriting in sustainable sectors (avoiding coal, nuclear etc.) coupled with holding assets and making investment decisions more clearly based on ESG principles.

European Green Deal

The ESG principles were not directly referenced in Solvency II.  However, later initiatives such as IORPS II have included direct reference. More recently, across all areas, the European Commission has been active in developing its sustainability agenda.  This can now be seen in the European Green Deal Investment Plan, the so-called “Green Deal”, presented in December 2019.   Prior to the Green Deal, as concerns financial services specifically, there have also been initiatives involving the three European Supervisory Authorities, including the European Insurance and Occupational Pensions Authority (EIOPA). 

The purpose of the Green Deal is to activate EU funding (at least €1 trillion) and form a framework to enable and stimulate the public and private investments required for the transition to a climate neutral, green, competitive and inclusive economy. 

Taxonomy and Other Regulations

Dove-tailing with the Green Deal, the European Union is rolling out the following measures which will have direct impact on (re)insurers: 

  • Unified EU Green Classification System – Taxonomy
    In seeking to benchmark industry participants, including (re)insurers, on relative levels of sustainable activity, there is a need for a “common rulebook”.  This will come about through the so-called “Taxonomy Regulation” that will create an EU-wide classification system or ‘taxonomy’.  It will provide market participants with a ‘common language to identify what economic activities can be considered environmentally sustainable’.   In December 2019, the European Union co-legislators reached “a common understanding on the taxonomy for green economic activities” which will now be subject to the approval of the European Parliament. The European Council has advised that it will be in place before the end of 2021, with full application anticipated by the end of 2022.
  • Sustainability Related Disclosures
    There will be a requirement for mandatory reporting on sustainable practices and ESG elements.  A “Disclosures Regulation” will require enhanced disclosures regarding financial products to end-investors. The impact of sustainability on the financial returns and their investment decisions will have to be disclosed.

    The Disclosures Regulation entered into force on 30 December 2019.  It has a transitional period of 15 months, ending in March 2021.  However, for annual report disclosures, the application date will be from 1 January 2022.

  • Climate Benchmarks 
    In specific regard to climate issues, an “EU Climate Transition and EU Paris-aligned Benchmarks Regulation” came into effect in December 2019.  This amends the existing Benchmarks Regulation and creates a new category of benchmarks aimed at assisting investors in comparing the carbon footprint of their investments and the prevention of so-called “greenwashing”.  The Regulation is principally facilitative in nature.  It includes extensions of deadlines from the existing Regulation meaning compliance deadlines from 2021. 

Other initiatives planned by the European Commission include strengthening international cooperation via discussions with third countries to scale up sustainable finance and a potentially change in bank and (re)insurer prudential treatment of assets with a favourable environmental and social impact.

The European Securities and Markets Authority (ESMA) stated in its “Strategy on Sustainable Finance” published February 2020 that it will work with the other European supervisory authorities (including EIOPA) to produce joint technical standards.   These are currently awaited.

If you would like to discuss any aspect of the above, please get in touch with any member of the Insurance team at William Fry.


 Contributed By Shannon O’Neill