Public

Issues Paper on the Implementation of
the Recommendations of the Task
Force on Climate-related Financial
Disclosures

February 2020

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About the IAISThe International Association of Insurance Supervisors (IAIS) is a voluntary membershiporganisation of insurance supervisors and regulators from more than 200 jurisdictions. The
mission of the IAIS is to promote effective and globally consistent supervision of the insurance
industry in order to develop and maintain fair, safe and stable insurance markets for the benefit
and protection of policyholders and to contribute to global financial stability. Established in
1994, the IAIS is the international standard setting body responsible for developing principles,standards and other supporting material for the supervision of the insurance sector andassisting in their implementation. The IAIS also provides a forum for Members to share theirexperiences and understanding of insurance supervision and insurance markets. The IAIS
coordinates its work with other international financial policymakers and associations ofsupervisors or regulators, and assists in shaping financial systems globally. In particular, theIAIS is a member of the Financial Stability Board (FSB), member of the Standards Advisory
Council of the International Accounting Standards Board (IASB), and partner in the Access to
Insurance Initiative (A2ii). In recognition of its collective expertise, the IAIS also is routinely
called upon by the G20 leaders and other international standard setting bodies for input on
insurance issues as well as on issues related to the regulation and supervision of the global
financial sector.
About the Sustainable Insurance ForumThe Sustainable Insurance Forum (SIF) is a leadership group of insurance supervisors andregulators working together to strengthen their understanding of and responses tosustainability issues facing the insurance sector. The long-term vision of the SIF is a global
insurance system where sustainability factors are effectively integrated into the regulation andsupervision of insurance companies. This SIF is convened by the United Nations Environment
Programme (UNEP), which serves as its Secretariat. The SIF works closely with theInternational Association of Insurance Supervisors (IAIS), delivering collaborative projects andresearch on climate change issues. As of November 2019, the SIF has 26 jurisdictions as
members.
Issues Papers provide background on particular topics, describe current practices, actual
examples or case studies pertaining to a particular topic and/or identify related regulatory andsupervisory issues and challenges. Issues Papers are primarily descriptive and not meant tocreate expectations on how supervisors should implement supervisory material. Issues
Papers often form part of the preparatory work for developing standards and may containrecommendations for future work by the IAIS.
International Association of Insurance Supervisors
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This document is available on the IAIS website(www.iaisweb.org).
© International Association of Insurance Supervisors(IAIS), 2020.
All rights reserved. Brief excerpts may be reproduced
or translated provided the source is stated.

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Contents
Acronyms .............................................................................................................................. 5
1

2

Introduction .................................................................................................................... 7
1.1

Context ................................................................................................................... 7

1.2

SIF/IAIS action on climate risk ................................................................................ 7

1.3

Evolving supervisory interest in TCFD .................................................................... 8

1.4

Objectives of this paper .......................................................................................... 8

1.5

Inputs for this paper ................................................................................................ 9

1.6

Structure of this paper............................................................................................. 9

Climate risk and insurance supervision: relevance of the TCFD Framework .................. 9
2.1

3

2.1.1

Recent developments in climate science ....................................................... 10

2.1.2

Industry responses ........................................................................................ 10

2.2

Recent supervisory developments ........................................................................ 10

2.3

Relevance of the TCFD to IAIS supervisory material ............................................ 12

Assessing TCFD implementation and climate risk disclosure in the insurance sector .. 13
3.1

4

5

Climate risks and responses in the insurance sector............................................. 10

Results of the SIF Survey on TCFD Implementation ............................................. 13

3.1.1

Understanding climate change ....................................................................... 14

3.1.2

TCFD awareness and implementation ........................................................... 15

3.2

Identifying good practices ..................................................................................... 17

3.3

Findings of the TCFD Secretariat report................................................................ 18

The role of supervisors................................................................................................. 19
4.1

Ensuring climate risks are considered by all insurers ............................................ 20

4.2

Clarifying the relevance of the TCFD Framework for supervisory objectives ......... 20

4.3

Setting expectations to encourage TCFD-relevant practices ................................. 20

4.4

Checking for coherence with other disclosure requirements ................................. 20

4.5

Assessing coherence in climate risk disclosures within groups ............................. 20

4.6

Supporting TCFD-related scenario analysis .......................................................... 21

4.7

Exploring new engagement models to support voluntary practice development .... 21

4.8

Referencing TCFD as a component of mandatory climate risk disclosures ........... 22

Conclusion ................................................................................................................... 23

Annex 1: The role of supervisors: Case studies .................................................................. 25
Australia: Australian Prudential Regulation Authority (APRA) .......................................... 25
European Union (EU) ...................................................................................................... 26
Belgium: National Bank of Belgium (NBB) ....................................................................... 27
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Canada: Office of the Superintendent of Financial Institutions (OSFI) ............................. 28
France: Autorité de Contrôle Prudentiel et de Résolution (ACPR) ................................... 29
Germany: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) ................................ 30
Italy: Istituto per la Vigilanza Sulle Assicurazioni (IVASS) ................................................ 31
Japan: Financial Services Agency (JFSA) ....................................................................... 32
Malaysia: Bank Negara Malaysia..................................................................................... 33
Singapore: Monetary Authority of Singapore (MAS) ........................................................ 34
South Africa: Prudential Authority .................................................................................... 34
United Kingdom: Bank of England Prudential Regulation Authority (PRA) ....................... 36
United States: Joint Submission from the California Department of Insurance (CDI) and the
Washington State Office of the Insurance Commissioner (OIC)....................................... 37
Annex 2 – TCFD thematic areas with links to ICPs ............................................................. 38

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Acronyms
A2ii

Access to Insurance Initiative

ACPR

Autorité de Contrôle Prudentiel et de Résolution

APRA

Australian Prudential Regulation Authority

ASEAN

Association of Southeast Asian Nations

ASFI

Australian Sustainable Finance Initiative

ASIC

Australian Securities and Investment Commission

BES

Biennial Exploratory Scenarios

BIS

Bank for International Settlements

CDI

California Department of Insurance

CDP

Carbon Disclosure Project

CFRF

Climate Financial Risk ForumDJSI

Dow Jones Sustainability Indices

EIOPA

European Insurance and Occupational Pensions Authority

ERM

Enterprise Risk Management

ESG

Environmental, Social and Governance

FCA

Financial Conduct Authority

FSA

Financial Services Agency

FSAP

Financial Sector Assessment Programme

FSB

Financial Stability Board

FSI

Financial Stability Institute

GHG

Greenhouse Gas

GIP

Green Investments Programme

IAIS

International Association of Insurance Supervisors

IASB

International Accounting Standards Board

IBIP

Investment-based Insurance Product

ICP

Insurance Core Principle

IPCC

Intergovernmental Panel on Climate Change

IST

Insurance Stress Test

IVASS

Istituto per la Vigilanza Sulle Assicurazioni

MAS

Monetary Authority of Singapore

NAIC

National Association of Insurance Commissioners

NBB

National Bank of Belgium

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NGFS

Network for Greening the Financial System

OECD

Organisation for Economic Co-operation and Development

OIC

Office of the Insurance Commissioner

OSFI

Office of the Superintendent of Financial Institutions

PRA

Prudential Regulation Authority

PRI

Principles for Responsible Investment

ORSA

Own Risk and Solvency Assessment

RBA

Reserve Bank of Australia

SEADRIFSoutheast Asia Disaster Risk Insurance Facility

SIF

Sustainable Insurance Forum

SSB

Standard Setting Body

TCFD

Task Force on Climate-related Financial Disclosures

The Bank

The Bank of EnglandUN

United Nations

UNEP

United Nations Environment Programme

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1

Introduction

1.1

Context

1.
Climate change is creating a wide range of material emerging (and emerged) risks to
the financial system and the global economy. Because of the dynamic, complex and global
impacts of climate risk across the economy and society, it is likely that all insurance
businesses will be directly or indirectly affected over the long-term – regardless of their size,
business line, domicile or geographic reach. The risks are expected to materialise over an
extended period, well beyond the normal planning horizon for insurers, but the developmentof these risks heavily depends on actions taken in the short-term. The wide-ranging andcomplex characteristics of climate change create an imperative for insurers 1 to strengthen
their understanding and assessment of climate risks now and into the future, by assessing
how physical, transition and liability risks 2 stemming from climate change may affect businessresilience, market dynamics, profitability and solvency.
2.
There is broad recognition of the relevance of climate risks to the mandates, objectives
and strategies of supervisors. 3 Within the insurance supervisory community, the Sustainable
Insurance Forum (SIF) has pioneered efforts to share knowledge on activities that canstrengthen assessment of potential climate risks facing insurance markets and the oversightof such risks through supervisory practices. This work has included joint activities with theInternational Association of Insurance Supervisors (IAIS).
3.
In 2017, a global voluntary framework for public disclosure of climate-related risks andopportunities in mainstream financial filings was developed by the Financial Stability Board(FSB) Task Force on Climate-related Financial Disclosures (TCFD). 4 The SIF has recognised
the importance of the FSB TCFD Recommendations and Supplemental Guidance (“TCFD
Framework”), and its relevance for the objectives of insurance supervisors. 5 Public disclosureof material information (which may include climate-related risks) is expected to enhancemarket discipline by providing meaningful and useful information to policyholders to makedecisions on insuring risks with the insurer, to market participants to make decisions aboutproviding resources to an insurer, and to facilitate comparisons between insurers.
1.2

SIF/IAIS action on climate risk

4.
Since initiating a strategic partnership with the SIF in 2017, the IAIS has identified
climate risk and sustainability as a strategic focus. In June 2018, the SIF and the IAIS released

In this Paper, the term “insurer” means insurance legal entities and insurance groups, including
insurance-led financial conglomerates and refers to the business of both insurers and reinsurers.
2 See the 2018 SIF/IAIS Issues Paper on Climate Change Risks to the Insurance Sector for an
elaboration on these risks.
3 For the purposes of this paper, the term ‘supervisors’ refers to public authorities responsible for the
regulation and the supervision of the financial sector.
4 The FSB established the TCFD in December 2015 to develop recommendations for voluntary climaterelated financial disclosures that are consistent, comparable, reliable, clear and efficient, and provide
decision-useful information to lenders, insurers and investors. The Task Force is an industry-led
initiative, comprised of representatives of market entities which are users and/or preparers of
disclosures from across the G20’s constituency, covering a broad range of economic sectors andfinancial markets. Further information on the FSB TCFD can be found at www.fsb-tcfd.org
5 http://unepinquiry.org/wp-content/uploads/2017/07/SIF_TCFD_Statement_July_2017.pdf
1

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a joint Issues Paper on Climate Change Risks to the Insurance Sector (“2018 Issues Paper”). 6
As the first analysis of climate change risk by an international Standard Setting Body (SSB),
the 2018 Issues Paper provided an overview of how climate change is currently affecting theinsurance sector and how this may evolve in the future, confirmed how these risks and impacts
may be of relevance for the supervision of the sector (including in regards to the IAIS InsuranceCore Principles (ICPs)), and described a range of current and contemplated approaches foraddressing climate risks through supervisory practices. The paper concluded that climate risks“warrant ongoing and intensifying scrutiny by supervisors”.
5.
Since the release of the 2018 Issues Paper, there has been a significant increase inaction by supervisors 7, SSBs and other international organisations to examine climate risks indifferent ways – including efforts to increase transparency and incentivise public disclosure ofclimate risk (see also section 2.2).
1.3

Evolving supervisory interest in TCFD

6.
Since its release in June 2017, the TCFD Framework has helped to inform market andpolicy practice relating to climate risk disclosure around the globe. Many major institutions,
including insurers, have expressed their support for the TCFD Framework and initiatedprocesses to develop TCFD-aligned disclosures. The number of financial institutions that havesigned onto the TCFD has increased markedly since the introduction of the TCFD Framework.
However, there has been no comprehensive assessment of climate risk awareness acrossthe insurance sector as a whole, or of how the disclosure practices of insurers vary between
insurance market segments. 8 In addition, there has been no analysis of whether therecommended disclosures in the TCFD Framework should be revised or enhanced to better
address the insurance business or whether quality data to accomplish the proposed
disclosures is available.
7.
Looking across jurisdictions, an increasing number of supervisors have expressed thatenhanced transparency on climate risks is a critical precondition for the effective pricing ofsuch risks in financial markets and appropriate market discipline for robust risk management.
There has been increasing debate regarding the role of supervisors in promoting adoption of
the TCFD Recommendations and Supplemental Guidance. Speaking in February 2019, SIF
Chairperson Geoff Summerhayes expressed that initiatives such as the TCFD may help close
this “climate data deficit”, recognising that some supervisors are questioning whether marketled action alone will deliver the necessary transformation.
1.4

Objectives of this paper8.
As a follow-up to the 2018 Issues Paper, and recognising the important role of the
TCFD Recommendations 9 in establishing a framework for climate-related disclosures for the
6 https://www.iaisweb.org/page/supervisory-material/issues-papers/file/76026/sif-iais-issues-paper-on-

climate-changes-risk
7 In this Paper, the term “supervisor” also refers to “regulator” and is used to refer collectively to thoseauthorities within a jurisdiction with responsibility in relation to insurance supervision. The term“supervision” is used to refer to supervision and regulation.
8 The TCFD Secretariat has conducted an assessment of disclosure practices in its annual status
reports, however, these consider disclosures of a select group of firms, and are not representative of
the entire insurance industry.
9 The TCFD Recommendations consider the disclosure work of other groups such as the Climate
Disclosure Standards Board and the Sustainability Accounting Standards Board.
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insurance sector, the SIF and IAIS agreed to develop this second Issues Paper. This paper
provides an overview of practices that supervisors have considered in the development ofclimate-related disclosure requirements within their markets. Considering the diversity ofsupervisory frameworks across jurisdictions, this paper focuses on practices that can be
implemented with limited direct regulatory intervention. In the convention of IAIS Issues
Papers, this document is primarily meant to be descriptive and is not intended to create
supervisory expectations. However, the speed at which supervisory practices relating toclimate risk are evolving, both within individual jurisdictions and through collective activities ofsupervisors, reflects the need to consider responses at the global level. In this context, theSIF and IAIS recognise the value of developing further materials to support supervisors in theirefforts to assess climate risks, including in relation to the ICPs. This paper is a step towards
this objective, and is intended to lay the groundwork for the development of future work, suchas an IAIS Application Paper.
1.5

Inputs for this paper

9.
This paper draws on the results of a SIF Survey on Implementation of the TCFD
Recommendations and Supplemental Guidance, which was conducted during the first half of2019. Case studies submitted by SIF members support the formulation of options forsupervisors that are included in Annex 1. This paper also benefited from stakeholder input
received during a workshop coordinated by the SIF and the IAIS, which took place in Zurichin September 2019, as well as from public consultation comments received between midDecember 2019 and early February 2020.
1.6

Structure of this paper

10.
The paper begins with an overview of the relevance of the TCFD Framework toinsurance supervision. It then summarises the results of different efforts to assess levels of
TCFD awareness and implementation within the insurance sector, based on the SIF Survey
mentioned above, as well as other sources of publicly available information. After this, thepaper sets out a range of options for supervisory approaches, based on case studies
describing supervisory practices in twelve jurisdictions, before concluding with a discussion
on lessons learned through the Survey and suggestions for next steps.

2

Climate risk and insurance supervision: relevance of the TCFD
Framework

11.
The strategic responses of insurers to climate risks, and the implications of theseactions on insurance markets, are of direct relevance to supervisors. The potential impacts ofphysical risks on insurance liabilities has been identified as one of the primary channels
through which climate change may affect broader financial system stability. 10 Also, thetransition risk to insurers of investments held to support long-term insurance liabilities is ofinterest to insurance supervisors. In addition to the two main types of risks above, certain
insurers, public authorities and other stakeholders have suggested that liability risks may
originate from climate change. As explained in the 2018 Issues Paper, this includes the risk ofclimate-related claims under liability policies, as well as direct claims against insurers for failingto manage climate risks. Considering the critical importance of insurance as an enabler of
10https://www.ecb.europa.eu/pub/financial-stability/fsr/special/html/ecb.fsrart201905_1~47cf778cc1.en.html
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economic activity and financial transactions, developments within insurance markets relating
to climate risks – such as the insurability of property – may be of importance to broader fiscal
and economic policymaking.
2.1

Climate risks and responses in the insurance sector

2.1.1

Recent developments in climate science12.
The 2018 Issues Paper provided an initial analysis of the climate risk landscape andhow different types of climate-related risks may be relevant for the global insurance sector.
Going forward, future climate-related risks and their physical and economic impacts will
depend on the rate and ultimate level of warming, and how these changes manifest into
environmental impacts. A climate pathway of roughly two degrees is likely to result insignificant impacts on human livelihoods, economic function, and social and political stability.
Above two degrees of warming, extreme heat waves could render some of the world’s largest
urban areas uninhabitable, while flooding, storm surges and sea level rise could lead to certain
major cities being partially submerged. 11
13.
In September 2019, the United Nations (UN) released their Global Outlook Reportsummarising the results of several specialised studies on the impacts of climate change on
environmental systems. 12 The findings of the report confirm that climate change is advancing
faster and more severely than the scientific community had previously predicted in the run-up
to the Paris climate negotiations. The report notes that temperatures are already up about
1.0°C from pre-industrial times and the last four years were the warmest on record – including
July 2019, which was the hottest month of all. Recent analysis by the Intergovernmental Panelon Climate Change (IPCC) predicts that global temperatures are likely to increase 1.5°C
between 2030-2052 if continuing at current rates. 13
2.1.2

Industry responses

14.
In its capacity as a risk manager, risk carrier and investor, the insurance sector playsa critical role in the management of physical and transition climate risks. Through its coreactuarial function, the insurance sector is perhaps the most well versed part of the financial
sector in understanding the pricing of climate risks. However, there are significant differencesin awareness of climate risk (and views on materiality) across the insurance sector.
15.
Insurers are responding to climate risks through changes to underwriting andinvestment practices, which may pose implications for affordability and availability of insurancein high-risk areas. A climate-driven event has been a contributing factor in at least one insurer
insolvency 14 and this could potentially increase in the future.
2.2

Recent supervisory developments

16.
According to the Network for Greening the Financial System (NGFS), climate change
poses material risks to the financial sector and it is, therefore, within the mandate of

11 Science Advisory Group to UN Climate Action Summit 2019 (November 2019), United in Science

https://www.undp.org/content/undp/en/home/librarypage/environment-energy/climate_change/ndcglobal-outlook-report-2019.html
13 https://www.ipcc.ch/site/assets/uploads/sites/2/2019/06/SR15_Headline-statements.pdf
14 For example, the insolvency of California-based Merced Property & Casualty Co after massive
wildfires in 2018.
12

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supervisors to ensure that the financial system is resilient to climate risks. 15 Since 2015, there
has been a significant increase in the number of policy and regulatory measures relating togreen and sustainable finance implemented around the world. Analysis by the United Nations
Environment Programme (UNEP) has found that approximately 25% of these measures relate
to disclosure, including voluntary guidelines, reporting frameworks and requirements relating
to environmental, social and governance (ESG) factors, sustainability issues and climaterelated risks.
17.
In the past two years, many supervisors, SSBs and other international organisations
implemented new measures relating to climate risks in the insurance sector (and institutional
investment more broadly) including regulatory requirements, guidance for disclosures andstatements clarifying expectations relating to self-assessment.
18.
Supervisors are collectively developing guidance to support the integration of climate
risks into supervisory practices. The SIF has developed tools and materials to support
supervisors in considering climate risks as part of their day-to-day supervision – including a
Question Bank on climate change risks, scheduled to be released publicly in the first half of2020. The Question Bank provides a framework, example questions for use in supervisory
engagements and activities, and response guidance to help evaluate the strength of
responses from firms. These materials can be applied across a range of on- and off-site
supervisory engagements.
19.
The NGFS is developing a guide for banking and insurance supervisors on how tointegrate climate and environmental risks into supervision. Based on a stock-take amongst
NGFS members, the guide aims to provide an overview of current practices for climate-risk
identification and assessment for prudential supervisors, related to setting supervisory
expectations and the supervisory and regulatory toolbox to address climate-related risks . The
guide is planned for publication in April 2020.
20.
The IAIS’ Strategic Plan 2020-2024 calls for enhancing support to Members on
responding to emerging(ed) risks, trends and developments, including climate risk. Under thisnew plan, the IAIS will start development in 2020 of an Application Paper for supervisors on
climate risks, to provide guidance for supervisors on how to examine topics such as Enterprise
Risk Management (ERM), investment, governance and disclosures by insurers in light ofclimate risk trends and developments. The IAIS will also develop in 2020-2021 an Issues
Paper on how insurers are adapting to emerg(ing)ed risks from a corporate governance andrisk management perspective.
21.
This Issues Paper aims to set the building blocks for such further work by identifying
practices of supervisors to encourage and/or require insurers to utilise the disclosures in the
TCFD. In addition, the IAIS joined the NGFS as an observer in June 2019 to further its climate
risk and resilience objectives. The work of the IAIS, both undertaken independently and in
partnership with the SIF, can also help support the objectives of the NGFS.
22.
Other international organisations are also beginning to assess the relationship ofclimate risks to standards and instruments:•

In September 2019, the International Monetary Fund (IMF) released a paper
describing financial and monetary policy instruments that can be used to support

15 https://www.banque-france.fr/sites/default/files/media/2019/04/17/ngfs_first_comprehensive_report_-_17042019_0.pdf
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•

2.3

climate mitigation goals, including supervisory tools such as disclosure requirements
and stress tests. 16 The IMF has indicated that it may consider climate change risks
within the Financial Sector Assessment Programme (FSAP) process.
In November 2019, the Financial Stability Institute (FSI) of the BIS, jointly with the SIF,
released an FSI Insights paper exploring climate risk assessment within the insurance
sector and approaches to assess climate risks through supervisory stress testing. 17
The paper describes the range of regulatory approaches that specify how insurers are
expected to assess their climate risk exposures and techniques that supervisors canuse to conduct their own assessment of climate risks.
Relevance of the TCFD to IAIS supervisory material

23.
The IAIS has issued the ICPs, which are comprised of Principle Statements, Standards
and Guidance, as a globally accepted framework for insurance supervision. As indicated in
the Introduction to the ICPs, “the ICPs seek to encourage the maintenance of consistently
high supervisory standards in IAIS member jurisdictions. A sound supervisory system isnecessary for the protection of policyholders and promoting the stability of the financial systemand should address the broad set of risks within, and posed by, the insurance sector”.
24.
As indicated in the 2018 Issues Paper, the TCFD Recommendations provide aframework for the consideration of climate-related risks. Although climate risk is not mentioned
specifically within the ICPs, relevant ICPs cover many aspects of the TCFD Framework, suchas governance, supervisory review and enterprise risk management (see Annex 2 for a crossreference of the ICPs to the TFCD thematic areas).
25.
In addition, ICP 20 (Public Disclosure) requires disclosure of “relevant andcomprehensive information on a timely basis in order to give policyholders and market
participants a clear view of their business activities, risk, performance and financial position.”
The Principle Statement and Standards within ICP 20 require insurers to provide information
on material risks faced by the company, such as insurance and investment risks, and their
management. This includes climate-related risks, if material 18. Physical risks may, forinstance, materially impact the nature or scale of risks arising from insurance contracts or an
insurer’s assumptions in models used for underwriting processes. Transition risks, on the other
hand, may materially impact an insurer’s investment risk exposures and its management.
26.
ICP 20 also introduces the concepts of relevance and reliability. The concept of
reliability is key for insurers when considering what information on climate risk should be
disclosed and whether the disclosures should be quantitative or qualitative in nature.
27.
While the TCFD Recommendations on climate-related disclosures are voluntary,
supervisors may refer to the more general, but comprehensive, requirements on public
disclosures in ICP 20 to encourage insurers to make climate risk disclosures. As ICP 20 allows
supervisors to meet the standard through public general-purpose financial reports, supervisors
may want to consider encouraging insurers to augment those disclosures with relevant
climate-related information, if applicable, rather than requiring duplicative disclosures forhttps://www.imf.org/en/Publications/WP/Issues/2019/09/04/Macroeconomic-and-Financial-Policiesfor-Climate-Change-Mitigation-A-Review-of-the-Literature-48612
17 https://www.bis.org/fsi/publ/insights20.pdf
18 The TCFD Recommendations relating to governance and risk management apply even when climate
risks are deemed immaterial to a given firm.
16

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regulatory purposes. Supervisors may also use the TCFD Recommendations, its
supplemental guidance for insurers and supporting material (including the special report on
scenario analysis) when designing best practises or as input for setting their own supervisoryobjectives.

3

Assessing TCFD implementation and climate risk disclosure in theinsurance sector

28.
Starting as early as 2015, assessments of insurance sector responses to climate risks,
undertaken by SIF member supervisors, have confirmed the need for supervisory action tostrengthen risk assessment, management and disclosure, including through supervisory
engagement and application of international instruments, such as the TCFD
Recommendations. 19
29.
In July 2017, the SIF released a statement endorsing the TCFD Recommendations. At
that time, members of the SIF concluded that insurance supervisors can play an importantrole in promoting widespread adoption of the recommendations and set out four areas throughwhich this could be done. Since then, members of the SIF have undertaken a range of actions
to encourage TCFD implementation, alongside other efforts to strengthen the consideration ofclimate risks within insurer business practices (see Annex 1).
30.
In the two years since the TCFD Recommendations were released, there has been asteady increase in uptake across financial and corporate sectors. As of December 1st 2019,
the TCFD had over 900 private sector entities as supporting institutions, including 45 insurers.
Together, these insurers represent a significant amount of the insurance sector in terms ofpremium volume and total assets – but are a fraction of the total number of insurers. In
addition, the figures above are not a clear indicator of implementation and release of TCFDaligned disclosures by supporting firms, nor the quality or characteristics of these
disclosures. 20 To explore the completeness of implementation further, the SIF conducted asurvey to gather a representative view of insurer’s awareness, understanding, levels of uptake
and implementation of the TCFD Recommendations across jurisdictions.
3.1

Results of the SIF Survey on TCFD Implementation

31.
Conducted in the first half of 2019, the SIF Survey on TCFD Implementation wascompleted by SIF Members in 15 jurisdictions. 21 Data was collected from 1,170 individual
insurers within those jurisdictions and aggregated at jurisdictional levels for the purpose of thisPaper. Results below are based on information from all 15 jurisdictions, taking a weighted
average across jurisdictions on the basis of sample size, unless stated otherwise.

For a review of initial work in this area, please refer to SIF (2017) Sustainable Insurance: The
emerging Agenda for Supervisors and Regulators, available at:https://www.sustainableinsuranceforum.org/publications
20 Assessment by the TCFD Secretariat (see section 3.3) has found that while certain disclosures within
the insurance sector may be increasing, quality and usefulness of such disclosures are not improving
at the same rate.
21 Australia, Belgium, Brazil, Canada, Finland, Germany, Italy, Japan, Netherlands, New Zealand,
Singapore, South Africa, United Arab Emirates, United Kingdom, United States (joint submission from
California and Washington State on the basis of NAIC materials).
19

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3.1.1

Understanding climate change

32.
Almost three-quarters of insurers that responded to the survey (73%) expect thatclimate change will affect their business. The most commonly cited areas in which climatechange is expected to impact insurers (see Figure 1) include:
•

•
•

•

Significant increases in claims, primarily insured losses from damage to property
and assets arising from climate-related natural catastrophe events. In addition, someinsurers report expectations of increasing claims arising from impacts of climaterelated trends on vulnerable sectors, including agriculture, trade credit and industrial
activities with high reliance on natural capital inputs (eg water use);
Impacts on investment portfolios, including potential devaluation of equity and debt
holdings in carbon-intensive industries arising from the manifestation of transition risks;Creation of new opportunities, including the development of new insurance products
to enable the scale-up of low-carbon technologies and service solutions, as well as
growth in demand for cover for physical climate impacts in general insurance portfolios;
andChanging insurance market dynamics, including persistently soft market conditions
for certain business lines, reductions in underwriting in certain sectors, which may bevulnerable to transition risks (eg marine), or changes in consumer preferences andconsumption patterns affecting demand (or lack thereof) for certain types of retailinsurance products (eg automotive). In addition, some insurers report concerns relating
to the availability and cost of risk transfer options (eg reinsurance or cat bonds), as
well as concerns relating to potential instability in the global insurance market andbroader financial system.
Figure 1: Expected impacts of climate change on insurers

Percentage of insurers indicating how climatechange may impact their business
75%
50%
25%
0%

Increases in Claims

Impacts on
Investment
Portfolios

New opportunities

Changing Market
Dynamics

Source: SIF Survey, 201933.
In addition to the high-level impacts listed above, insurers identified a range of specificissues arising from climate change that may affect their business, such as:•

Operational issues, including business continuity challenges (eg damage to physicalassets or interrupted service) resulting from physical climate impacts. Many firms
expect that both climate events and trends (eg extreme heat) may impact day-to-day
activities, such as timely claims management and processing. More broadly, claims

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••management challenges may arise from unpredictability in the incidence of physicalclimate events, and difficulty in prediction of the number of claims arising from a given
event (or set of interlinked events);
Strategic issues, including challenges in developing clear positions and contingency
plans in response to the range of market, regulatory, reputational and potential liability
risks that are already manifesting for insurers. Some insurers expect that increasing
regulatory requirements relating to climate-related issues (such as disclosure) will
necessitate higher resource commitments; andBusiness resilience issues, including the potential for earnings to be impacted if riskbased prices rise beyond consumer willingness to pay. Some firms expect that the
combined impacts of heightened exposures, increased modelling capacity/granularity,and continued increase in physical climate risk profiles will render home insurance
unaffordable in certain geographies in which they operate. These perspectives support
the view that recurring attritional losses may have a significant impact on long-termbusiness resilience, in addition to an increasing frequency and severity of catastrophe
events, which may be amplified or exacerbated by climate change.

34.
Among the insurers surveyed, the majority that expect to be affected by climate change
were non-life insurers, whose primary concern is with risks to underwriting liabilities. Thoselife insurers that expect to be affected were primarily concerned with investment activities.
Insurers that reported that they do not expect to be affected by climate change in any respect
were predominately life insurers.
3.1.2

TCFD awareness and implementation

35.
Looking at current disclosures, the majority of insurers surveyed (76%) reported thatthey already disclose some type of information relevant to climate change and its impacts.
However, significant differences exist between jurisdictions in the percentage of insurers thatcurrently disclose “climate-relevant” information. These differences may stem from differencesin regulatory requirements relating to climate change risk disclosure.
36.
There are also major differences between insurers with respect to the scope of
information that may be considered “climate-relevant”, reflecting differences in insurance
business areas, investments, and the range of climate risks that may be material. Insurers use
a range of channels to disclose climate-related information, including:
•
•
•
•
•

•

Annual financial reports;
Sustainability reports and consolidated non-financial statements;
Position statements and policies (eg statements of investment policies);
Other external communications, including investor presentations;
Reporting to data vehicles (eg CDP, or Carbon Disclosure Project), indices (eg Dow
Jones Sustainability Indices (DJSI)) or coalitions (eg Principles for Responsible
Investment (PRI), ClimateWise), which may or may not be public; andNon-public channels, such as supervisory reporting.

37.
The TCFD Recommendations can help address these inconsistencies in how climaterelated information is communicated to the market, by setting a framework for identifying“climate-relevant” information, providing recommendations on how such information may beorganised, and specifying channels for how this information can be communicated (eg as acomponent of, or integrated within, mainstream financial disclosures such as annual reports).
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Insurance sector stakeholders have expressed the view that supplementary guidance for
insurance firms within the TCFD Framework may need to be refined in order to reflect the
specifics of the insurance business model (eg consideration of how annual contract repricing
may mitigate direct financial exposures to climate risks, yet create challenges for longer-termbusiness viability).
38.
In contrast to the relatively high levels of awareness of climate change risks, survey
results suggest that awareness and understanding of the TCFD Recommendations within theinsurance sector remain comparatively low and vary significantly across jurisdictions.
Awareness of the TCFD Recommendations is generally higher in insurance markets indeveloped economies, and is highest in those jurisdictions where supervisors have made clear
references to the TCFD Recommendations in public statements (such as reports or
speeches).
39.
While awareness of climate change as a risk to the insurance sector is fairly high, thetransition from awareness to action – specifically, action to better understand how climate risks
may affect a firm, including through implementation of the TCFD Recommendations – islimited (see Figure 2). Survey results indicate that levels of current and planned
implementation of the TCFD Recommendations by insurers is comparatively low: only around15-20% of insurers have made plans to, or are already taking steps to, implement the TCFD
Recommendations and to deliver TCFD-aligned disclosures.
Figure 2: Comparing climate risk awareness with TCFD implementation
Number of insurers expecting that climatechange will impact their business

Number of insurers having taken steps(or planning) to implement TCFD
Recommendations
Taken
Action
20%

No
28%

Yes
72%

No Action
80%

Source: SIF Survey, 201940.
From the perspective of size, it is evident that action on the TCFD Recommendationsin the insurance sector is being driven by the world’s largest insurers, with some mediumsized insurers also taking action. The large majority of smaller insurers have not yet taken
action. Insurers representing 60% of the total premium volume of respondents (equating toover USD 720bn in total premiums) report current and/or planned action to implement the
TCFD Recommendations.
41.
This disparity between large and small insurers is understandable, considering theresource requirements associated with assessing climate risk in a robust manner. However,
the impacts of climate risk on smaller insurers are also of importance for insurance supervisors
if healthy markets are to be maintained.
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42.
Survey results furthermore indicate a range of internal, external and market-based
factors that may constrain TCFD implementation, including:
•

•

•

•

3.2

Low levels of awareness. Several supervisors reported that significant shares of
respondents were unaware of the TCFD Recommendations before receiving the
SIF/IAIS TCFD survey. This is especially prevalent in large emerging economy
insurance markets, where over one-third of respondents indicated that they were notpreviously aware of the TCFD Recommendations;View that existing disclosures are adequate. Many respondents indicated that they
are already disclosing certain climate-related information in other public reports (egexposure to natural catastrophe risks) and, therefore, did not consider it necessary toadopt the TCFD Recommendations;View that TCFD was not applicable. Some respondents indicated that the TCFD
Recommendations, and climate issues more broadly, were not applicable to them.
Qualitative responses gathered from the survey suggest that a majority of the insurers
expressing these views were life and health insurers; andCapacity and resource limitations. Some respondents indicated that they did nothave available capacity or resources to undertake processes necessary to deliver
TCFD-aligned disclosures, and therefore did not plan to take action.
Identifying good practices

43.
From a supervisory perspective, TCFD-aligned disclosures can be useful to inform
assessment of risk exposures and to serve as a tool to help evaluate the strategic responseof a given firm, complementing other sources of supervisory reporting used to benchmark
supervised entities.
44.
Insurers can take a range of steps to ensure that disclosures are relevant for different
user groups. Many insurance-specific industry entities and associations are currently
undertaking efforts to identify and promulgate best practices relating to implementation of the
TCFD Recommendations and climate risk assessment more broadly, including the UN
Principles for Sustainable Insurance (PSI). In addition, a wide range of non-governmentalorganisations (NGOs) and other research entities are developing open-source materials
designed to support insurers (as underwriters and asset managers) in undertaking climaterelated risk assessment and scenario analysis, as well as evaluating and commenting on
current practices of industry participants. While such efforts and resources may be useful, it isbeyond the scope of this paper to review the breadth of materials being developed, or for the
SIF or the IAIS to formally identify or endorse specific industry-developed materials.
45.
Considering that TCFD-aligned disclosures are most immediately relevant for market
participants (which includes existing and potential investors, lenders and other creditors),consistency and comparability are often considered paramount. The rapid proliferation ofdifferent best practice guidance could present challenges for insurers and for supervisors if
inconsistencies arise. For example, industry stakeholders have observed that the landscapeof physical and transition climate risk modelling is evolving rapidly but remains fragmented.
On the basis of the survey and the workshop with industry stakeholders some high-levelinsights can be gleaned on ways to undertake the TCFD implementation process in aresource-efficient and robust manner:

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••Clarifying governance processes to support implementation: Most insurers thathave developed TCFD-aligned reports have begun by focusing on the qualitative
aspects of the TCFD Recommendations – specifically Governance and Strategy.
Insurers report that it is necessary to have established governance processes relating
to climate risks, and TCFD implementation specifically, before taking steps towards
more complex climate risk assessment and disclosure efforts (eg pertaining to risk
management, metrics and targets and scenario analysis), for which common
methodologies are still under development.
Engaging across the insurance value chain: Insurers report that there is anincreasing awareness of climate risks within different stakeholder groups – including
policyholders, cedants and brokers. Certain insurers report that stakeholders areasking to leverage modelling expertise to explore the exposure of capital investments
to climate risks. Firms seeking to strengthen their TCFD-aligned disclosures can use
their power to influence better disclosures from investee firms and policyholders.
Insurers report a range of different types of disclosures from investee entities as
particularly useful, including:
o
o
o

•

3.3

Robust emissions data, provided in readily comparable metrics for carbon
intensity;
Geographic data on physical assets, to assess concentrations of risk invulnerable areas (eg low lying coastal areas); andAdaptability to changing policy, technological, market or social conditions.

Strengthening climate risk assessment capacities: While certain insurers havedeveloped sophisticated models to assess certain types of physical climate-related
hazards (eg natural catastrophes), methodologies to quantitatively assess how both
physical and transition-related climate risks may affect business resilience are at an
early stage. If insurers are unable to effectively quantify their climate risk exposures, it
may be challenging for them to disclose robust information relating to potential future
impacts. While the availability and sophistication of methodologies in this space isdeveloping rapidly, major technical gaps remain. 22 Insurers can work with third-party
service providers to explore options to utilise existing resources (such as catastrophe
models that capture climate scenarios) to inform the development of risk insights
relevant for TCFD-aligned disclosures, recognising proportionality and the resource
requirements associated with investing in internal modelling capacity. Insurers reportthat action to integrate climate factors into mainstream risk models can often be more
impactful than employing specialised physical or transition risk scenario analysis tools,
which may be difficult to integrate into core risk management systems. An appropriatebalance should be struck between insurers working with third-party service providers
and developing their own internal capacities, which may take time.
Findings of the TCFD Secretariat report

46.
The TCFD Secretariat published its second status report on adoption of the TCFD
Recommendations in June 2019. Out of 147 insurers reviewed, the percentage that disclosed
information aligned with the TCFD recommended disclosures in 2018 varied between 12%
and 39%, depending on the recommendation. This represents a small improvement compared
22 For a more detailed discussion of climate risk assessment methodologies in the insurance sector,

please refer to FSI (2019) Turning up the heat, available at: https://www.bis.org/fsi/publ/insights20.pdf
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to 2016/2017, at which time disclosed information varied between 7% and 33%, dependingon the recommendation (see Figure 3). 23 The insurance sector exhibited some of the smallest
improvements in disclosure practices when compared to other financial sectors (such as
banking) or corporate sectors.
Figure 3: Summary of Insurance sector TCFD Disclosure, 2016-2018

Source: TCFD Secretariat, 20194

The role of supervisors

47.
Insurance supervisors are following different strategies to encourage climate risk
disclosure by insurers. The activities and experiences of SIF member supervisors illustratethat the TCFD Framework provides an important foundation on which supervisory guidance
23 https://www.fsb.org/wp-content/uploads/P050619.pdf

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for insurer disclosures can be developed, as described in the set of case studies provided in
Annex 1 of this document.
48.
On the basis of current and contemplated practices used by insurance supervisors,
there are several approaches that supervisors are exploring to strengthen disclosure ofclimate-related risks and opportunities in line with the TCFD Recommendations, as well as toleverage the TCFD Framework to support broader supervisory objectives relating to climate
risk assessment.
4.1

Ensuring climate risks are considered by all insurers

49.
In most jurisdictions, supervisors have tools in place to enable oversight of “all material
risks” that may affect an insurer. Across the supervisory community, the critical change ofmind-set influencing action on climate change is a recognition that climate change may posematerial risks to insurers. Therefore, existing tools are relevant and appropriate for theassessment of climate risks, including those described in IAIS ICPs relevant to enterprise risk
management, such as the Own Risk and Solvency Assessment (ORSA). IAIS supervisory andsupporting material provides examples of how supervisory tools can be applied so thatmaterial risks are considered by insurers.
4.2

Clarifying the relevance of the TCFD Framework for supervisory objectives

50.
Supervisors may consider clarifying how the TCFD Framework can support insurers inmeeting supervisory objectives relating to climate change. For instance, in the Bank ofEngland’s Supervisory Statement on Climate Change, the Prudential Regulation Authority(PRA) specifically notes that they expect “firms to consider engaging with the TCFD
Framework and other initiatives in developing their approach to climate-related financial
disclosures”. 24
4.3

Setting expectations to encourage TCFD-relevant practices

51.
Supervisors can consider setting expectations to influence how insurers develop
strategic responses to climate risks, taking the TCFD Framework as an example. For instance,
certain supervisors have communicated expectations on how Boards and Senior Management
should implement clear responsibilities and lines of accountability for climate change risks andassociated procedures to ensure climate risks are appropriately considered within thedevelopment of business strategy, risk management, operations and public disclosure.
4.4

Checking for coherence with other disclosure requirements

52.
Supervisors seeking to encourage uptake of the TCFD Recommendations by insurers
may wish to consider whether any potential conflicts may arise from disclosure of climate risk
information with broader public disclosure rules, including requirements on timely release of
information. A detailed analysis of potential conflicts has not yet been undertaken.
4.5

Assessing coherence in climate risk disclosures within groups

53.
Analysis of the SIF Survey responses suggest that there are inconsistencies in theways in which the head of a group interacts with legal entities within the group on climate risk
issues. While awareness and engagement on climate risks may be higher in legal entities
24 https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/supervisory-statement/2019/ss319.pdf?la=en&hash=7BA9824BAC5FB313F42C00889D4E3A6104881C44
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within groups that are TCFD signatories, this is not always the case. This variation in the levelof awareness can create challenges for supervisors in developing robust assessments ofclimate risk exposures of large insurance groups that are active across multiple jurisdictions.
Group-wide supervisors may wish to encourage the head of a group to consider the TCFD
Recommendations at a group-wide level. Where relevant, group-wide supervisors may
consider ways to integrate climate risks more routinely into group supervisory processes,
including supervisory colleges. Additionally, insurance groups that support the TCFD
Recommendations may consider enhancing the capacity of legal entities within the group to
deliver TCFD-aligned disclosures, in particular by strengthening understanding of TCFD
disclosure requirements, internal processes and data collection mechanisms.
4.6

Supporting TCFD-related scenario analysis

54.
Certain aspects of the TCFD Framework – including Recommendations andSupplemental Guidance relating to scenario analysis – have necessitated the development of
new analytical approaches, tools and data sets. Supervisors are at an early stage in efforts to
conduct climate-related scenario analysis, as detailed in recent analysis by the FSI. 25
Supervisors may want to work with experts, both within and outside the industry, to provide
guidance on how appropriate scenarios can be developed along with the associated impacts
to an insurer’s business under those scenarios.
55.
There are divergent perspectives on how supervisors can best engage with industry to
encourage the development of robust approaches for climate-related scenario analysis.
Certain industry stakeholders have expressed a desire for standardisation in underlying
assumptions and parameters of scenarios in order to ensure consistency and comparability of
information. Other industry stakeholders have expressed the view that standardisation of
scenarios may constrain the internal benefits that an insurer may accrue by undertaking someprocesses independently. There may be benefits for supervisors in coming to a shared viewon the core elements of scenario analysis, such as clear expectations and guidance on how
to consider climate risk impacts across different types of insurance business areas andfinancial assets (eg equity, debt and real estate), as well as insurance-specific guidance on
the parameters associated with scenarios to be applied across the broader financial sector(eg stress tests applied to banks and insurers). Looking forward, finding ways to harmonise
views on the climate sensitivity of a given level of greenhouse gas (GHG) emissions, theexpected impacts associated with a given level of temperature rise and the role of other earthsystem processes, among other issues, could help alleviate some aspects of uncertainty.
Consideration of the veracity of the scenarios and the associated impacts will be needed,since results of such analysis could influence business strategy, and potentially affect productpricing and availability.
4.7

Exploring new engagement models to support voluntary practice development

56.
Alongside all of the above options, supervisors can establish new platforms to engage
with industry on climate risk disclosure in order to raise awareness and encourage
development of voluntary practices. Several supervisory authorities have established suchprocesses to share information on best practices, such as Japan, Malaysia, the Netherlands,
Singapore and the UK.
25 FSI Insights on Policy Implementation No. 20, Turning up the heat – climate risk assessment in theinsurance sector: https://www.bis.org/fsi/publ/insights20.htm.

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4.8

Referencing TCFD as a component of mandatory climate risk disclosures

57.
Members of the SIF have expressed a range of views on whether or not climate-related
disclosure should be made mandatory or remain voluntary in nature, recognising trade-offs
with respect to disclosure quality, consistency, market maturity and proportionality. Some SIF
members have implemented requirements for disclosure of climate-related information by
insurers, or supervise compliance with legislation implemented by other government agencies
that specify such requirements. For example, in the case of the United States, the California
Department of Insurance and the Washington State Office of the Insurance Commissioner are
working with other state-level regulators to reference the TCFD Recommendations within the
National Association of Insurance Commissioners (NAIC) Climate Risk Disclosure Survey,
which is applied as a mandatory instrument in several states.
58.
Over the course of 2019, certain supervisors 26 and governments 27 have expressedthat climate risk disclosure may need to transition to mandatory regimes over time in order forclimate-related risks to be effectively priced within the financial system, and broader real
economy. Speaking in June 2019, Bank of England Governor Mark Carney noted that “In the
future, to achieve a carbon-neutral economy, disclosure must become mandatory,” suggestingthat an iterative process of disclosure, reaction and adjustment is necessary for market
standards to be comparable, efficient and decision-useful. 28 An increasing share of industry
stakeholders have also expressed positive views on the implementation of mandatory
disclosure, reflecting a phased approach to allow for practices to develop. However, somestakeholders have suggested that a mandatory approach could discourage innovation involuntary practices and, therefore, some degree of flexibility is necessary to allow practices to
evolve.
59.
Supervisors who are considering the introduction of mandatory climate risk reporting
requirements may wish to consider a range of approaches, recognising the iterative nature ofdisclosure processes and early stages of certain aspects of climate risk assessment
methodologies. Examples of such practices from SIF members include phased complianceperiods, a step-by-step approach to ratcheting up the quality of disclosures, prioritisation ofqualitative aspects of disclosures (eg governance dimensions), and setting clear expectations
on desired focus areas (eg governance, strategy, risk management or scenario analysis). In
jurisdictions where disclosure of climate risk information is already mandatory, supervisors
may wish to consider aligning or updating requirements in alignment with the TCFD
Recommendations.

26 See, for example: https://www.banque-france.fr/en/intervention/climate-risk-call-action

https://www.bankofengland.co.uk/-/media/boe/files/speech/2019/remarks-given-during-the-unsecretary-generals-climate-actions-summit-2019-mark-carney.pdf.
27 The UK has already announced in its Green Finance Strategy published in July 2019 that it expects
all listed companies and large asset owners to report climate risks by 2022. A joint taskforce with UK
regulators is considering the most appropriate path to mandatory disclosure.
28
https://www.bankofengland.co.uk/-/media/boe/files/speech/2019/enable-empower-ensure-a-newfinance-for-the-new-economy-speech-by-mark-carney
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5Conclusion

60.
Since its release in June 2017, the TCFD Recommendations have helped informmarket and supervisory practice related to climate risk disclosures. Various major insurers
have expressed their support for the TCFD and have indicated they are in the initial or earlystages of developing TCFD-aligned disclosures. These voluntary efforts by insurers tostrengthen their understanding, assessment and disclosure of climate-related risks andopportunities are welcomed by supervisors, policyholders and other stakeholders, including
market participants.
61.
The SIF Survey suggests that a vast majority of insurers that participated in the survey
do expect that climate change will affect their business. In contrast to this relatively high levelof awareness of possible general impacts on risks and opportunities, the survey, however,also shows that awareness and understanding of the TCFD Recommendations amongst thesurveyed insurers remain comparatively low. Finally, only a small number of the surveyed
insurers have made plans to, or are already taking steps to, actually implement the TCFD
Recommendations and to deliver TCFD-aligned disclosures.
62.
As the survey results indicate, there is a wide dispersion on climate-related disclosure
between insurers, as well as a high level of recognition of climate risk and a low level of
disclosure. Given this wide dispersion, a purely voluntary pathway – without supervisory
support or intervention towards adoption of TCFD Recommendations – may not yielddisclosures of the quality and scope necessary to inform decisions by insurers (as users of
this information), or enable market participants and other users of information to makedecisions about how insurers are taking action on climate risks and opportunities.
63.
Supervisors considering different approaches to strengthen TCFD disclosure
implementation will have to evaluate trade-offs – for instance, between consistency (egwidespread adoption through mandatory requirements), quality (eg avoiding that disclosure
becomes a tick-box exercise whereby firms do not share information of relevance for market
participants or supervisors), comparability (eg the degree of standardisation of disclosures)and reliability (eg market participants will be able to use the disclosures to perform relatively
accurate valuations).
64.
Going forward, supervisors may seek to consider a range of broader issues stemmingfrom increased climate risk which may be relevant for supervisory objectives, including:•••

The potential for increasing climate risk to affect insurance pricing forvulnerable consumers: supervisors could consider how to use TCFD-aligned
disclosures as a springboard to explore how insurance sector climate risk intelligencecan be used to strengthen government and consumer awareness, incentivise
mitigation actions and ultimately reduce exposures;
Implications of climate risks for long-term business model resilience:
strengthening climate risk transparency, including forward-looking scenario analysis,
could illuminate the ways in which climate risks may impact insurance business model
viability over the long-term – including by exploring the potential for increasing
attritional losses, inability to charge appropriate premiums for the risk and loss inrevenue; andInteractions between micro- and macroprudential objectives: in the case of
integrated supervisory authorities (eg prudential authorities working across sectors, orcentral banks), strengthening climate risk transparency may have implications for a

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range of institutional objectives. Integrated frameworks, linking firm-level disclosures
to system-level assessments, could help strengthen understanding of the impacts ofclimate risks on individual firms, as well as the impacts of the sector as a whole on
climate risk resilience within the financial system and broader economy.
65.
To support supervisors’ efforts to assess the impact of climate risks to the insurance
sector and help resolve challenges, including around public disclosure, the SIF and IAIS
recognise the value of developing further supporting material. Therefore, as a next step, theSIF and IAIS will develop an Application Paper on Climate Risk in the Insurance Sector. 29 This
paper is expected to include a section on disclosures.

29 IAIS Application Papers provide additional material related to one or more ICPs and/or ComFrameto help practical application of supervisory material. Application Papers can provide further advice,illustrations, recommendations or examples of good practice to supervisors on how supervisory material
may be implemented.
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Annex 1: The role of supervisors: Case studies
SIF/IAIS Members are taking a range of actions to strengthen climate risk disclosure by
regulated entities in their jurisdictions, including in reference to the TCFD Recommendations.
This section provides case studies of supervisory action on climate risk disclosure (and climate
risk issues more broadly), in the following jurisdictions:
•
•
•
•
•
•
•
•
•
•
•
•
•

Australia: Australian Prudential Regulation Authority (APRA)
European Union (EU)
Belgium: National Bank of Belgium (NBB)
Canada: Office of the Superintendent of Financial Institutions (OSFI)France: Autorité de Contrôle Prudentiel et de Résolution (ACPR)
Germany : Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin)
Italy: Istituto per la Vigilanza Sulle Assicurazioni (IVASS)Japan: Financial Services Agency (FSA)
Malaysia: Bank Negara Malaysia
Singapore: Monetary Authority of Singapore (MAS)South Africa: Prudential Authority
United Kingdom: Bank of England Prudential Regulation Authority (PRA)
United States: Joint Submission from the California Department of Insurance (CDI)
and the Washington State Office of the Insurance Commissioner (OIC).

Australia: Australian Prudential Regulation Authority (APRA)Over recent years, APRA has highlighted the financial nature of climate change risks. APRA
has advised that these risks are material, foreseeable and actionable now. APRA continues
to conduct engagement on climate risk issues through speeches, attendance on industry
panels, and interaction with peer agencies through Australia’s Council of Financial Regulators.
A coordinated effort by APRA, the Australian Securities and Investment Commission (ASIC),
the Reserve Bank of Australia (RBA) and the Australian Treasury has resulted in consistentmessaging across the financial system regarding expectations for industry responses toclimate risks.
In 2018, in order to assess the awareness and understanding of climate risks promoted by
APRA’s recent period of education, APRA undertook a survey of 38 large entities from allsupervised industries. This survey confirmed APRA’s actions had led to an increased
awareness and understanding of climate risks. APRA-regulated entities were shown to havea general understanding of climate change as financial risks, and perceived them as material
now or in the short-term; focussing on the opportunities as well as the risks presented byclimate change and upskilling to respond to the challenges. However, entities’ modelling,stress testing and scenario analysis – and the disclosure of these activities – was shown torequire improvement.
The thematic results of this survey – as well as an overview of recent developments in relation
to climate change risks both domestically and internationally – were published in APRA’s
Information Paper: Climate change: Awareness to action.30
Building from the basis of awareness that was evidenced in this paper, APRA has embarked
on a period of enhanced supervisory action. Supervisors of the 38 entities surveyed by APRA
30 https://www.apra.gov.au/sites/default/files/climate_change_awareness_to_action_march_2019.pdf

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– as well as any other entities for which climate change is considered a material risk – are now
assessing their supervised entities’ responses to climate change, in line with the framework
set out by the TCFD Recommendations.
APRA has developed tools to assist supervisors with the assessment of these risks. These
tools include the production of industry-specific internal guidance and the implementation of
the SIF Question Bank, designed to facilitate supervisory discussions.
APRA is also supporting industry-led innovations in response to climate change. APRA is anobserver member of the steering committee of the Australian Sustainable Finance Initiative(ASFI), an industry group representing members of the finance sector in Australia developing
a sustainable finance roadmap in Australia. This roadmap will recommend pathways, policies
and frameworks to enable the financial services sector to contribute more systematically tothe transition to a more resilient and sustainable economy, consistent with global goals suchas the UN Sustainable Development Goals and the Paris Agreement on climate change. 31
At the same time, APRA has continued its international engagement on climate issues,
including by taking a leadership role on sustainability issues within the SIF and IAIS. Recently,
APRA has supported a project from the FSI, comparing risk quantification requirements that
insurance regulators impose in relation to climate risks and how insurance supervisors
quantify such risks themselves. APRA also maintains observer status of the NGFS. APRA’s
supervisory activity within Australia is reflective of its leadership and collaboration withinternational as well as domestic regulatory peers.
European Union (EU)In the European Union, Regulation (EU) 2019/2088 on sustainability-related disclosures in thefinancial services sector will require the transparency of end-investors on the integration ofsustainability risks in their investments, on the consideration of adverse sustainability impacts
of investment decisions, on sustainable investment objectives, or on the promotion ofenvironmental or social characteristics in investment decision-making and in advisory
processes. It applies to financial market participants, including insurers that offer investmentbased insurance products (IBIPs), as well as pension product providers and financial advisers,
including insurance intermediaries that provide insurance advice with regard to IBIPs. The
Regulation will become directly applicable in all EU Member States from 10 March 2021.
The EU Taxonomy Regulation, which establishes the criteria for determining whether an
economic activity is environmentally sustainable for the purpose of determining the degree ofenvironmental sustainability of an investment, complements these transparency requirements
in order to ensure alignment of the disclosure on the sustainability of products and investmentswith the taxonomy objectives and criteria. A first set of requirements will apply from 31
December 2021, focusing on climate change mitigation and adaptation.
Furthermore, the EU Non-Financial Reporting Directive (Directive 2014/95/EU) currently
requires large public interest entities to disclose material information on key ESG aspects intheir financial accounts. In June 2017, the European Commission published non-binding
guidelines to help companies disclose the non-financial information required by the Directive,
with new guidelines being issued in 2019 on reporting climate-related information, with specificsector-guidance for banks and insurance companies. The new guidelines integrate the TCFD
31 https://www.sustainablefinance.org.au/

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Recommendations. The European Commission has very recently launched a consultation on
the review of the Non-Financial Reporting Directive, to strengthen reliable, comparable andrelevant information on sustainability risks, opportunities and impacts. 32
Belgium: National Bank of Belgium (NBB)
As climate-related risks and the transition to a more sustainable economy can constitutesignificant financial risks, the NBB is working on improving the measurement, management
and mitigation of these risks.
The NBB has set three priorities in its action plan to address climate-related risks within thefinancial sector. The first is to develop its own expertise regarding climate-related risks (close
the knowledge gap), the second is to gather sufficiently granular information to refine climaterelated risk assessment (close the quantitative data gap) and the third is to raise awarenessand encourage financial institutions to include climate-related risks in their risk management.
In 2019, the NBB dedicated a thematic article in its Financial Stability Report 33 on climaterelated risks and sustainable finance, which also presents the results and conclusions from a
sector-wide survey.
Surveyed institutions indicated they are disclosing information on environmental matters aspart of their non-financial reporting. This is the result of the Belgian Law of 3 September 2017,
implementing Directive 2014/95/EU (EU Non-Financial Reporting Directive). Moreover, almost
all institutions were aware of the TCFD Recommendations and supplemental guidance, andmost insurers participating in the survey planned on implementing these TCFD
Recommendations. In addition, financial institutions indicated they already disclose or areplanning to disclose information regarding environmental issues or climate-related risks byother means (eg sustainability reporting in line with the Global Reporting Initiative or reporting
prepared in cooperation with external partners). However, the type of disclosures varies
widely. While some institutions provide some information about the carbon footprint of someof their exposures, quantitative information remains scarce, and most information is of aqualitative nature.
The survey demonstrated that financial institutions’ awareness of climate-related risks is stillat the early stage and that there is a lack of available data to adequately assess the exposureof Belgian institutions to climate-related risks. The absence of a common taxonomy anddisclosure framework obviously hampers the identification of climate-related risks and of truly
sustainable investments. But even in the absence of such a taxonomy and disclosure
framework, financial institutions can increase their efforts to capture their exposures to climaterelated risks and contribute to mitigating these risks.
The thematic article includes recommendations aimed at encouraging financial institutions toimprove the measurement, management and disclosure of climate-related risks, to take partin discussions with supervisors to jointly improve the data and methods to best capture andmitigate these risks, and to support the financing of more sustainable investments.
Specifically, the NBB encourages financial institutions to disclose information on climaterelated risks, in line with TCFD Recommendations and, going forward, the upcoming
guidelines on climate-related non-financial reporting. Although there is already widespread
32 https://ec.europa.eu/info/files/2020-non-financial-reporting-directive-consultation-document_en
33 https://www.nbb.be/doc/ts/publications/fsr/fsr_2019.pdf

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support for TCFD Recommendations on climate-related financial disclosures, the TCFD status
report, published in September 2018, revealed that the quality of such reporting can still be
improved, especially in terms of quantitative, financial implications.
Canada: Office of the Superintendent of Financial Institutions (OSFI)
Canada has begun articulating expectations and raising awareness for alignment with the
TCFD Recommendations. In the March 2019 Federal budget, 34 the government expressed
support for the TCFD Recommendations as voluntary international disclosure standards anda phased approach to adopting them by major Canadian companies, as appropriate. The
Government will also encourage adoption by federal Crown corporations, where appropriate
and relevant to the business activities. In June 2019, the Expert Panel on Sustainable
Finance, 35 commissioned jointly by the Minister of Environment and Climate Change and theMinister of Finance, released their final report entitled Mobilizing Finance for Sustainable
Growth. In it, the Panel made several recommendations to the government, pertaining to theimplementation of a Canadian approach to TCFD implementation.
The Panel endorsed a phased approach under a mandatory “comply-or-explain” regime.
Phase 1 will focus on wider-known aspects of the TCFD that many companies already disclosesuch as qualitative descriptions of governance, strategy and risk management. Phase 2 will
cover aspects of the TCFD that will likely require better information accessibility and enhanced
analytic capacity, such as climate metrics, targets and scenario analysis. The Panelrecommends that larger companies and financial institutions be given a five-year
implementation timeline to allow sufficient time to develop internal controls and capacity, andthat small and medium-sized companies be allotted an additional two years, to allow time forclearer precedents, more reliable and affordable information and more establishedprofessional support. The Panel is also recommending that provincial insurance regulators
and Canadian Insurance Services Regulatory Organisations, the Canadian Securities
Administrators, and the Canadian Association of Pension Supervisory Authorities harmonise
provincial regulatory approaches in line with the TCFD implementation approach.
OSFI undertook two surveys in 2019 related to climate change and disclosure:••

The first survey collected information on the climate change risk assessment and risk
management practices at the larger deposit taking institutions and insurers. Thissurvey showed that for most Canadian insurers, awareness of the potential impact ofclimate change on their business models is high, and most are in early stages of trying
to calculate the impact. The larger insurers in the sample have established systems
and processes to embed climate-related financial risks into their enterprise risk
management frameworks, and have governance structures to address climate-relatedrisks.
The second survey focused on 44 Canadian-domiciled insurers and collected data toassess the level of awareness, uptake and implementation of the TCFD
Recommendations. The results showed that 56% of insurers surveyed are making
plans to, or have already taken steps to implement TCFD-aligned disclosures on
climate-related risks. Although alignment with the TCFD Framework may not be fully
mature, there is evidence of climate risk impacts embedded in ESG reporting to34 https://www.budget.gc.ca/2019/docs/plan/anx-04-en.html

https://www.canada.ca/en/environment-climate-change/services/climate-change/expert-panelsustainable-finance.html
35

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external stakeholders in annual reports, sustainability reports, external presentations
and investor presentations. The biggest challenge facing insurers in implementing the
TCFD Recommendations centred on the lack of standard industry specific scenarios,
assumptions and output requirements that would assist with stress-testing analysis.
There is also a challenge with the time horizon mismatch between financial planning
periods of 1-5 years and climate risk’s horizon that stretches beyond 10-20 years. They
also cited the complex interrelations of political, regulatory, economic and socioeconomic effects making climate change impacts difficult to predict and quantify.
OSFI will use the results of the two surveys to assess generally how insurers are incorporatingclimate change in their risk management practices, and specifically how they are considering
disclosure requirements. OSFI has also created a working group tasked with developing aplan to incorporate climate-related risks into supervisory guidance and activities. The working
group is also tasked with the quantification of exposures to financial institutions and continued
assessment of current practices with respect to identification, analysis and risk managementof climate risk exposures.
France: Autorité de Contrôle Prudentiel et de Résolution (ACPR)
Financial institutions are required to disclose the way they take into account ESG criteria intheir investment decisions, according to Article 173 of the French law on ecological transition
and green growth, passed in August 2015. In 2018, the ACPR reviewed the reports of 17
insurance groups, which represent 88% of the market. The application decree of Article 173
was voluntarily not prescriptive in order to give some leeway to initiatives and innovative
approaches from the industry. The main conclusions of this review are presented below.
First, the publication requirement was respected: 76% of the sample issued a dedicated report,
whereas the rest included this information in a pre-existing report, such as the annual report.
All insurance groups described their consideration of ESG criteria and a description of labels
they use, in accordance with Article 173. Almost all undertakings implemented an exclusion
or divestment policy, mostly on the basis of environmental criteria (for instance, divestment
from coal mining) and have an investment policy in green bonds. The measure of carbon
intensity of assets is the most widespread metric for these investment decisions. Other metrics
used come from credit rating agencies or public institutions (Organisation for Economic Cooperation and Development (OECD), UN).
However, the level of detail regarding the investment policy varies between groups, andgenerally does not meet the level of expectation of Article 173:•••

Two thirds of the sample assessed the contribution of their action to the international
objective of limiting global warming, but the objectives set by insurance groups are notalways clearly described, especially in terms of deadlines;
Only half of the sample specified whether the climate-related risks to their businessare physical or transition risks, whereas Article 173 requires financial institutions toreport on their exposure to climate risks, especially the greenhouse gas emissions of
the assets they own (transition risks); andLastly, little information is published on how ESG risks are managed. Some groups
indicated they use stewardship to influence ecological transition of undertakings they
invest in. Some groups also set up a team dedicated to social responsible investment.

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The content of reports published in 2017 and 2018 did not substantially evolve: groups
generally do not describe the implementation of their long-term objectives nor the progress
made over this period to achieve them. Yet, progress was made with a better implication of
governance bodies and a consideration of ESG risks beyond mere corporate social
responsibility (CSR) aspects. The main findings of this review were published in April 2019with the view to call upon insurers to better take into account and manage ESG risks, primarily
by developing a prospective approach and making use of appropriate scenarios.
While numerous comments were made by observers (mainly NGOs), further work is needed
to increase awareness of the reports among the general public.
On Regulation (EU) 2019/2088 that will be directly applicable from 10.03.2021, please referto the EU case study above. The information published according to this regulation will replace
the French law Article 173 reports.
Germany: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin)
Sustainable finance is one of the key priorities of BaFin. BaFin is looking closely at themethods available to insurers – eg for the quantification of physical and transition risks in theirinvestments. Climate stress tests can be used by insurers to better identify, assess, monitor,
manage and control their environmental risks. As the insurers are responsible for their own
risk management, they are obliged to examine whether the company-specific stress tests
appropriately model the key sustainability risks. They need to independently improve methods
and tools to ensure that these can model the sustainability risks in the long-term. Many
insurers use analysis tools from external providers or combine their own tools with external
ones.
Given the increasing importance of climate stress tests and scenario analysis, BaFin contacts
insurers and, during on-site supervisory interviews, obtains an understanding of theimportance of stress tests and scenario analysis in insurers' investments. In addition, BaFin
held workshops with the industry with a particular focus on governance issues and scenario
analyses and stress tests. The outputs of these activities will influence the design of future
supervisory practice and BaFin's risk-based supervisory approach. BaFin plans to continue
this practise to build up expertise.
As a supporter of the TCFD Recommendations published in June 2017, Germany participatedin the SIF Survey on the status of TCFD Recommendation implementation in 2019. It was
discovered that entities reporting on climate change do so via several channels, first andforemost as part of entities’ annual sustainability reports, but also via annual consolidated nonfinancial statements.
The 2014/95/EU Directive was implemented in the German Commercial Code by introducing
a duty on the non-financial declaration in the (group) management report. The additional
reporting was required for the first time for the financial year 2017.
In 2019, BaFin published its Guidance Notice on Dealing with Sustainability Risks, which
focuses also on key topics relevant within the scope of the TCFD Recommendations. BaFin
intends this Guidance Notice to serve as a compendium of non-binding procedures (goodpractice principles) to be applied, with regards for the principle of proportionality, by supervised
entities in the area of sustainability risks to implement the legal requirements for a proper
business organisation and an appropriate risk management system. The Guidance Noticeconsiders details of strategies, responsible governance and business organisation. BaFin
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recommends a strategic assessment of sustainability risks. The central focus of the Guidance
Notice is risk management. It considers risk identification, management and control processes
together with traditional methods and procedures, with specific reference to sustainability
risks. In addition, the Guidance Notice considers issues regarding stress tests including
scenario analyses, particularly with regard to entity-specific tests, and considers transition andimpact scenarios. External stress tests are not covered.
In 2020, BaFin will develop a concept and strategy for the supervision of the management ofsustainability risks.
As of 2021, BaFin will systematically record and address sustainability risks through existingsupervisory instruments.
BaFin also participates in the NGFS with a focus on the development of a handbook forsupervisory authorities and the development of climate-related scenarios and corresponding
application policies.
Italy: Istituto per la Vigilanza Sulle Assicurazioni (IVASS)In July 2018, IVASS issued Regulation No. 38/2018 on the system of governance of insurance
undertakings and groups, in accordance with the provisions of the Solvency II Directive,
Delegated Regulation 2015/35 and EIOPA Guidelines. The new Regulation rationalises theexisting regulatory framework, while at the same time introducing new provisions that
underline the importance of social and environmental factors in the definition of the strategicplan and of the activities of insurance undertakings. In particular, article 4 (2) of the Regulationlays out that the controls relating to the corporate governance system shall cover each type ofcorporate risk, including those of an environmental and social nature, “generated or borne”.
These risks shall be adequately taken into account and shall be defined and assessed by the
corporate functions, each according to its specific competencies (Risk manager, Assetmanager, Human resources, Compliance, etc.). Article 47 (2, b) of the Regulation also lays
down that undertakings may introduce remuneration systems, for the variable component,
based on non-financial indicators such as, for example, criteria based on social and/or
environmental performances or the management of customer service.
Between September 2018 and March 2019, IVASS has conducted confidential requests for
information at national and European level. In particular, IVASS collected from a
representative sample of groups and undertakings (life and non-life business):•••qualitative information on investments and underwriting practices;quantitative data on natural catastrophe claims settlements; andincentives or disincentives for considering sustainability in Solvency II, in particular in
the market risk and natural catastrophe module for the standard formula and internal
models.

The questions were specifically aimed to collect evidence on investment and underwriting
practices from non-life (re)insurers with regard to climate risks. Main obstacles cited byinsurers in investing in sustainable assets related to climate change are “market obstacles”,
such as the lack of data and information on performance as well as the impossibility to monitor
climate change risks. Participants consider that the impact of climate change on investments
would mostly arise from climate migration, flooding more generally and the environmental
impact on biodiversity, and more specifically on human health. Further obstacles cited are thelack of a theoretical framework and lack of clarity on what are sustainable investments (related
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to taxonomy and benchmarks). Some national large players consider assets issued by certain
companies as bearing a higher risk, in particular those involved in the coal sector or in sectors
with potential severe environmental damages. More than 70% of the entities selected have
implemented or plan to implement specific processes aimed at identifying and evaluating
issuers with a higher exposure to ESG issues (eg exclusion lists).
At the European level, insurers indicated that physical risks arising from longer-term shifts inclimate (such as increases in sea level, changes in the intensity and/or frequency of storms
and flooding), besides natural disasters (heatwaves, floods and wildfires) would most directly
have an impact on real estate portfolios. Indirect impacts of these events are expected onsovereign bond exposures (eg where tourism is affected) or on global supply chains (risk of
supply chain disruption) and availability of resources (risk of resources scarcity). From theevidence available, some participants noted their exposures are currently mostly located in
the Eurozone/Europe.
Lastly, in July 2019, IVASS contributed to the EIOPA Consultation Paper entitled “Opinion onsustainability within Solvency II” both in terms of providing data and also by participating in thedrafting process for the section relating to investments.
Japan: Financial Services Agency (JFSA)In Japan, there has been significant progress in implementing the TCFD Recommendations.
TCFD supporters have grown to 201 entities, including 12 insurance companies andassociations at the end of October 2019. In transforming climate risks into climate
opportunities to realise a virtuous cycle of environment and economic growth, the disclosure
based on TCFD Recommendations plays a key role in Japan. Activities by the JFSA to support
TCFD implementation include:••

Hosting symposiums on: "TCFD – The Power of the TCFD Framework in CompanyInvestor Dialogue" on 12 February, 2019 and “Dialogue between companies andinvestors on TCFD” on 20 December, 2019 which were co-hosted by the Japan
Exchange Group, Inc.; andStrongly supporting the TCFD Consortium of Japan 36, which was led by the industry
and launched in May 2019 37 to serve as a platform for constructive dialogue on climaterelated financial disclosures as recommended by the TCFD. All the TCFD supporters
can join the Consortium. Its structure is described as below in Figure 4. On 8 October
2019, the Consortium hosted the world’s first TCFD Summit 38 and released the
Guidance for Utilizing Climate-related Information to Promote Green Investment (theso called “Green Investment Guidance”) 39 which provides investors and otherstakeholders with viewpoints and good practices for understanding the information
disclosed based on the TCFD Recommendations.

Strengthening engagement in sustainable finance within and across borders, the JFSA
appointed its first Chief Sustainable Finance Officer in March 2019. In addition, the JFSA isan active member of the NGFS.

36 https://tcfd-consortium.jp/

37 https://www.fsa.go.jp/en/news/2019/20190521.html
38 https://tcfd-summit.org/indexEn.html

39 https://tcfd-consortium.jp/en/news_detail/19100802

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Figure 4: The Structure of TCFD Consortium of Japan:

Source: Japan Financial Services Agency (2019)
Malaysia: Bank Negara Malaysia
As climate-related information is new to the financial sector, Bank Negara Malaysia concurs
that a new engagement platform between the supervisor and financial industry can accelerateindustry responses towards ensuring a smooth and orderly transition to a low-carbon
economy, including managing exposures to climate risks and facilitating businesses totransition towards sustainable practices.
In view of this, Bank Negara Malaysia established a Joint Committee on Climate Change (JC3)in September 2019, to pursue collaborative actions for building climate resilience within the
Malaysian financial sector, guided by three key mandates:•••building capacity through sharing of knowledge, expertise and best practices inassessing and managing climate-related risks;
identifying issues, challenges and priorities facing the financial sector in managing thetransition towards a low-carbon economy; andfacilitating collaboration between stakeholders in advancing coordinated solutions toaddress arising challenges and issues.

The JC3 comprises four sub-committees focusing on risk management; governance anddisclosure; product and innovation as well as engagement and capacity building. The SubCommittee on Governance and Disclosure will develop disclosure-related best practices andexplore potential adoption of existing standards including TCFD Recommendations.

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Singapore: Monetary Authority of Singapore (MAS)MAS recognises that environmental risks, including climate change, not only pose areputational concern, but can also result in physical and transition risks that can have anegative impact on regulated financial institutions. MAS has been actively engaging financial
institutions within its jurisdiction on the issue of environmental risks, including climate change.
MAS issued new guidance in July 2017, requiring insurers to consider emerging risks such asenvironmental risks (including climate change) in their ORSA. Considerations ofenvironmental risks in the ORSA help to improve the quality of disclosure on the quantitativeand qualitative efforts of the insurer around the ORSA. MAS had also, in its 2018 industry wide
stress testing exercise, incorporated a climate variability scenario to assess the impact ofextensive floods (eg arising from extreme rainfall) on insurers’ property and casualty
exposures as well as on solvency levels. Future industry stress tests will include transition risk
exposures and other climate change-related physical perils.
MAS announced its Green Finance Action Plan in November 2019. Under the Plan’s auspices,a new USD 2 billion (S$2.7 billion) Green Investments Programme (GIP) was launched. The
GIP will invest in public market investment strategies that have a strong green focus. This will
help support the Singapore financial centre in promoting sustainable projects and mitigatingclimate change risks in Singapore and the region.
To improve understanding and analysis of climate-related risks and opportunities, good quality
data and information are required to support informed investment and insurance underwriting
decisions. Better information will also help investors engage with companies on the resilienceof their strategies and capital spending, which could help promote a smooth (rather thanabrupt) transition to a lower-carbon economy. Hence, quality disclosure is key. The TCFD
Recommendations can provide a standardised framework for climate disclosures given theircomprehensive coverage, focus on financial impact and strong industry support.
MAS will look to set supervisory expectations on governance, risk analysis and disclosure ofenvironmental risks through the issuance of environmental risk management guidelines forfinancial institutions. The guidelines will encourage the adoption of the TCFD
Recommendations to help financial institutions in fulfilling the disclosure expectations.
South Africa: Prudential Authority
The Prudential Authority became a member of SIF in 2017. South Africa’s inclusion as amember of a network of insurance supervisors and regulators from around the world affords
the country valuable insights into global insurance initiatives, critical in an emerging market
and developing economy like South Africa. The learnings since assuming membership in SIF
have significantly assisted South Africa as it continues to refine and enhance its insurance
regulatory framework.
The increasing risk that climate change presents to the insurance sector has been a consistentand topical discussion at the SIF over a number of years. South Africa, like many othercountries in Southern Africa, has seen an increase in natural catastrophes (droughts, floods
and hailstorms) over the past few years. Apart from the increase in physical climate risk, there
is also an increasing risk associated with the transition to a low-carbon economy. Both physicalclimate risk and transition risk will affect the insurance industry. The insurance industry
represented by both life and non-life actors plays a critical role in the formal economy,
operating in multiple roles as risk transferees, risk mitigants and institutional investors. The
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risks posed by climate change and transition require acute focus in order for regulators andsupervisors to understand the complex linkages to the financial soundness of their supervised
institutions and the stability of the financial system as a whole.
South Africa’s socio-economic challenges may be compounded by the transition to a lowcarbon economy. The ancillary industries tethered to our high-carbon dependency are
employment drivers in a society that already sees high levels of unemployment. The urgency
to transition to low-carbon economies must be aligned to balanced growth and developmentthat steers clear from shocks to the current socio economic framework.
As an emerging market, supervisory objectives include (either explicitly or implicitly) a focus
on closing the protection gap, a gap which at the same time is being widened by climatechange. To this end, the Prudential Authority seeks to include varied stakeholders fromgovernment and the private sector as part of a multi-pronged intervention strategy.
Although the Prudential Authority has not formalised and explicitly included climate risk in allparts of its legislative and supervisory frameworks, it has made significant progress in termsof understanding this risk. Initiatives that assisted the Prudential Authority in its understandingof climate risk, together with progress in this regard, are listed below:••

Climate risk has been highlighted to the Financial Stability Committee of the Central
Bank as an emerging risk. Creating awareness at the highest levels of the organisation
is important to drive initiatives forward.
A risk-based regulatory framework was legislated and became effective on 1 July
2018. This framework allows for all material risks to be identified and assessed even if
not explicitly modelled (eg climate risk). Physical climate risk is dealt with more
explicitly by requiring insurers to calculate capital requirements for natural catastropherisk (although it is currently only calibrated for certain types of catastrophes). The
framework deals further with both physical risk and transition risk implicitly by requiring
insurers to have a documented risk management strategy. Apart from other aspects,
the risk management strategy must describe each current material risk and emerging
risk, and the insurer’s approach to managing those risks. Operationally, an insurer’s
suite of risk management procedures and tools must, at a minimum, include a process
for identifying and assessing new and emerging risks. An ORSA report containing thisinformation needs to be submitted to the Prudential Authority at least annually. The
following enhancements, relating to climate risk (ie physical and transition risk) to thisframework are under consideration:
o

o
o
o

Provide training to supervisors and create supervisory guidance on how tosupervise this risk. For example, types of questions that can be posed to senior
executives and board members in order to obtain more information from onsite visits;
Enhance Pillar I requirements to quantify the risk more appropriately (ie as partof the on-going assessment of appropriateness of the standard formula).
Possibly creating Pillar II guidance on the risk management and governancerequirements (ie those relating to the investment policy) that allows for climate
risk to be explicitly considered; andEnhance Pillar III requirements in order for important information on climate
risks to be reported consistently.

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••During the first half of 2019, the Prudential Authority surveyed the insurance sector inSouth Africa in order to assess its maturity in terms of climate risk reporting and, more
specifically, the adoption of TCFD Recommendations. Despite the voluntary nature of
the survey, a response/completion rate of 66% of all insurers in South Africa wasobserved. 79% of respondents surveyed believe that climate change will affect theirbusiness but only 37% already report on information relevant to climate change
impacts. The survey served not only as an information gathering exercise that helped
the Prudential Authority understand the maturity of climate risk reporting by insurers inSouth Africa, it also raised awareness and signalled the importance of considering
climate-related risks as part of an insurer’s risk management framework.
Another key contributor to the Prudential Authority’s progress in this regard was theattendance of and participation in insurance seminars, conferences and workshops(local and internationally) where climate-related topics were discussed and debated.
The Prudential Authority is also closely involved in industry initiatives where innovative
products are considered to mitigate the effects of climate risks (eg weather-based
index insurance).

Climate risk reporting is a crucial step in understanding the impact both from a physical andtransitional perspective. The aforementioned initiatives have started the journey for the
Prudential Authority but a lot more needs to be done to have a more robust and consistentframework for the assessment and reporting of climate risk.
United Kingdom: Bank of England Prudential Regulation Authority (PRA)
In 2015, Mark Carney, in his capacity as chair of the FSB, established the TCFD. The Bank ofEngland (“the Bank”) and Mark Carney, in his capacity as its Governor, has promoted (viaspeeches and guidance) the importance of clear and reliable climate disclosures to regulated
firms.
In 2019, the Bank strengthened its support for climate-related financial disclosures by settingout expectations in a supervisory statement that PRA-regulated firms “develop an approachto disclosure on the financial risks from climate change”. This asked firms to:•••Consider whether further disclosures (beyond existing requirements) are necessary toenhance transparency on their approach to managing the financial risks from climatechange;Develop and maintain an appropriate approach to disclosure of financial risks fromclimate change; andEngage with wider initiatives on climate-related financial disclosures, such as TCFD,
and to take into account the benefits of disclosures that are comparable across firms.

The supervisory statement also signals to firms that there is an increased possibility that
disclosure will be mandated in more jurisdictions and, hence, they should prepare accordingly.
To help inform the Bank's view of best practice, beyond what it has stated in the 2019supervisory statement, the PRA has established the Climate Financial Risk Forum (CFRF)
jointly with the Financial Conduct Authority (FCA). The objective of this industry forum is tobuild capacity and share best practices to advance financial sector responses to the financial
risks from climate change. The forum has set up four technical working groups to produce
practical tools and guidance; one of the four working groups is focused on disclosure. The
working group on disclosure intends to publish final outputs by the end of Q1 2020.
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The Bank has included climate scenarios in the 2019 Insurance Stress Test (IST) and will be
testing the financial sector’s resilience to climate change via the 2021 Biennial Exploratory
Scenarios (BES), which complements the annual cyclical stress tests set by the Bank. The
inclusion of climate scenarios will support firms to produce quantified financial impacts ofclimate-related risks, which in turn will support firms to disclose climate-related financial risks.
The 2019 IST includes three climate scenarios that impact both assets and liabilities fromphysical and transition impacts (orderly and disorderly transitions, as well as a high physicalrisk scenario). The 2021 BES will contain multiple scenarios in order to test “severe but
plausible” transition and physical risks and will ask firms to model shocks over decades rather
than years. Both the 2019 IST and 2021 BES should support firms in their climate risk
management; encourage them to take a strategic, long-term view to addressing climate risks;
and, crucially from a disclosure perspective, will highlight data gaps that need to be filled for
effective disclosure.
The Bank is also mindful of the UK Government’s Green Finance Strategy, which sets an
expectation for publicly listed and large asset owners to disclose in line with the TCFD
Recommendations by 2022. To help operationalise this expectation, the Bank is a member ofa joint taskforce of UK regulators, chaired by the Government, which is examining the mosteffective way to approach disclosure, including exploring the appropriateness of mandatory
reporting.
Finally, in April 2019, the Governor announced that the Bank will be undertaking its own TCFD
disclosure in its annual reporting, with the first disclosure taking place in 2020. Given that the
Bank expects regulated firms to disclose their approach to managing climate-related financial
risks, the Bank is keen to hold itself to similarly high standards.
United States: Joint submission from the California Department of Insurance (CDI)
and the Washington State Office of the Insurance Commissioner (OIC)
Consistent with each year of the past decade, in July 2019 the annual NAIC Climate Risk
Disclosure Survey was sent out to the more than 1,000 insurance companies. Six states
participate in the annual survey, including California, Connecticut, Minnesota, New Mexico,
New York and Washington. These six states are able to survey more than 70% of the UnitedStates insurance market, and the survey results are maintained on the California Department
of Insurance website.
In 2019, the covering letter from the insurance commissioners included a message to insurers,
encouraging them to refer to the TCFD Recommendations when filling out the survey andnoting the overlap between the annual survey and these recommendations. This action wasannounced at the Climate Risk and Resilience Working Group of the NAIC in New York Cityin August 2019. The announcement noted that the IAIS and the SIF have endorsed the ideaof insurers using these recommendations to report on climate change.

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Annex 2 – TCFD thematic areas with links to ICPs
TCFD Thematic Areas
Governance: The
organisation’s
governance aroundclimate-related risks
and opportunities
Strategy: The actualand potential impactsof climate-relatedrisks andopportunities on theorganisation’s
businesses, strategy,
and financial
planning

Risk Management:
The processes usedby the organisation to
identify, assess, andmanage climaterelated risks

Metrics and Targets:
The metrics andtargets used toassess and manage
relevant climaterelated risks andopportunities

Recommended Disclosuresa) Describe the board’s oversightof climate-related risks andopportunities.
b) Describe management’s role inassessing and managing climaterelated risks and opportunities.
a) Describe the climate-relatedrisks and opportunities theorganisation has identified over the
short, medium, and long-term.
b) Describe the impact of climaterelated risks and opportunities on
the organisation’s businesses,
strategy, and financial planning.
c) Describe the resilience of theorganisation’s strategy, taking into
consideration different climaterelated scenarios, including a 2°C
or lower scenario.
a) Describe the organisation’s
processes for identifying andassessing climate-related risks.
b) Describe the organisation’s
processes for managing climaterelated risks.
c) Describe how processes for
identifying, assessing, andmanaging climate-related risks areintegrated into the organisation’s
overall risk management.
a) Disclose the metrics used by theorganisation to assess climaterelated risks and opportunities inline with its strategy and risk
management process.
b) Disclose Scope 1, Scope 2, and,if appropriate, Scope 3 greenhousegas (GHG) emissions, and therelated risks.
c) Describe the targets used by theorganisation to manage climaterelated risks and opportunities andperformance against targets.

Source: IAIS/SIF 2018 Issues Paper
PublicIssues Paper on the Implementation of the TCFD Recommendations
Adopted by the IAIS Executive Committee - February 2020

Link to IAIS ICPs
ICP 7 – Corporate Governance
7.3 – Structure and governanceof the Board
7.10 – Duties of Senior
Management
ICP 20 – Public Disclosure
ICP 7 – Corporate Governance
7.2 – Corporate culture,business objectives andstrategies
ICP 20 – Public Disclosure

ICP 8 – Risk Management andInternal Controls
8.1 – Systems for risk
management and internal
controls
8.4 – Risk Management
Function
ICP 16 – Enterprise Risk
Management for Solvency
Purposes(Provisions relevant to stresstesting and scenario analysis)
ICP 20 – Public Disclosure
ICP 8 – Risk Management andInternal Controls
8.5 – Actuarial Function
ICP 9 – Supervisory Review andReporting
9.1 – Supervisory Powers
ICP 16 – Enterprise Risk
Management for Solvency
Purposes(Provisions relevant to stresstesting and scenario analysis)
ICP 20 – Public Disclosure

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