Insurance Europe has responded to a discussion paper by the European Insurance and Occupational Pensions Authority (EIOPA) on the prudential treatment of sustainability risks.
European insurers strongly support the drive towards sustainability and are ready to build on their current actions to contribute further to the transition to a more sustainable society.
The industry is supportive of EIOPA receiving a mandate from the EC, in the context of the Solvency II 2020 review, to determine if there is evidence, based on available data, to justify a differential prudential treatment of exposures related to environmental, social and governance (ESG) assets or activities.
It is important to pursue a risk and evidence-based approach to fulfil the mandate in order to maintain Solvency II’s risk-based nature. EIOPA raises valid, yet challenging to answer questions in the discussion paper, due to the unstable, scarce and not sufficiently standardised data available in this area. In particular, the isolation of the sustainability element from other (non)economic parameters and subjective influences in the constantly changing environment will be ambitious and difficult.
The industry suggests being cautious and to avoid taking an overly theoretical and complex approach. There are many uncertainties involved and the chosen assumptions and approach will heavily impact the outcomes. Therefore, any results should be interpreted with the necessary caution, and conclusions or actions based on the results should be approached with care. Furthermore, any work in this area should also be proportionate and feasible for smaller, non-complex insurers.