IAIS and SIF Publish Paper on Implementation of TCFD Recommendations
IAIS and Sustainable Insurance Forum (SIF) published an issues paper on implementation of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Recognizing the diversity of supervisory frameworks across jurisdictions, the paper identifies a number of areas in which supervisors can encourage strengthened disclosures through the application of existing supervisory tools. To support supervisory efforts to assess the impact of climate-related risks to the insurance sector and help resolve challenges, including around public disclosures, IAIS and SIF will further work on climate-related risks in the insurance sector during 2020; the work will be focused on topics such as enterprise risk management, corporate governance, investment, and disclosures. Additionally, IAIS published a Peer Review Process (PRP) Questionnaire related to the Insurance Core Principle (ICP) 19 on conduct of business.
In June 2018, IAIS and SIF released a joint issues paper on climate change risks to the insurance sector. As a follow-up to the 2018 issues paper and recognizing the important role of the TCFD Recommendations in establishing a framework for climate-related disclosures for the insurance sector, IAIS and SIF agreed to develop this second issues paper. This paper provides an overview of practices that supervisors have considered in the development of climate-related disclosure requirements within their markets. Considering the diversity of supervisory frameworks across jurisdictions, this paper focuses on practices that can be implemented with limited direct regulatory intervention. The 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 of 2019. Case studies submitted by SIF members support the formulation of options for supervisors that are included in Annex 1.
Going forward, supervisors may seek to consider a range of broader issues stemming from increased climate risk as they may be relevant for supervisory objectives, including the following issues:
- The potential for increasing climate risk to affect insurance pricing for vulnerable consumers—Supervisors could consider how to use TCFD-aligned disclosures as a springboard to explore how insurance sector climate risk intelligence can be used to strengthen government and consumer awareness, incentivize 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.
- Interactions between micro- and macro-prudential objectives—In the case of integrated supervisory authorities, strengthening climate risk transparency may have implications for a range of institutional objectives. Integrated frameworks, linking firm-level disclosures to system-level assessments, could help strengthen understanding of the impact of climate risks on individual firms as well as the impact of the sector as a whole on climate risk resilience within the financial system and broader economy.
The IAIS and SIF recognize the value of developing further material to support supervisors in their efforts to assess climate risks, including in relation to the ICPs. The second issues paper is a step toward this objective and is intended to lay the groundwork for development of future work, such as an IAIS Application Paper.
Keywords: International, Insurance, TCFD, Sustainable Finance, ESG, Sustainable Insurance Forum, Climate Change Risk, Disclosures, IAIS
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