Insurance undertakings will take on a key role in the structural change towards a climate-neutral economy. As providers of insurance products as well as being institutional investors they may contribute significantly to reducing the impact of climate change and to make the transition to a more sustainable and more resilient economy. By integrating sustainability aspects in relation to Environmental, Social and Governance (ESG) factors into the regulatory and supervisory legal frameworks, capital flows should now accordingly be diverted towards sustainable investments in accordance with the European Commission’s Action Plan on Sustainable Finance and the Green Deal, and measures pushed for overcoming financial risks arising from climate change, natural catastrophes and social problems as well as for promoting transparency and long-term thinking in financial and economic activities.
The regulatory framework should be amended to implement the European Commission’s Action Plan on Sustainable Finance as follows:
- Regulation amending Solvency II (EU) – integration of sustainability risks into risk management, including the ORSA, investment and remuneration
- The Disclosure Regulation (EU) 2019/2088 on sustainability‐related disclosures in the financial services sector
- The Benchmark Regulation (EU) 2019/2089 – amending Regulation (EU) 2016/1011 as regards EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures for benchmarks
- The Taxonomy Regulation (EU) 2020/852 – on the establishment of a framework to facilitate sustainable investment
- Revision of the Corporate Sustainability Reporting Directive (CSRD), which is intended to replace the Non-Financial Reporting Directive (NFRD)
- Regulation amending the Insurance Distribution Directive (IDD)
While accompanying supervised entities in the transition process, the FMA has set the strategic framework conditions, has intensified the dialogue with the insurance undertakings and set the following priorities:
- Asset Screenings: since 2019, the FMA has been conducting various analyses of the transitional risks in investment, in order to identify those assets in the portfolios that would be exposed to potentially higher fluctuations in price during a transition to a more CO2-neutral economy. Furthermore, the share and corporate bond portfolios are valued and analysed under different transition scenarios with regard to the decarbonisation of the economy, to what extent companies in which the insurers invest, must reduce their CO2 emissions, in order to achieve a path that conforms with the Paris climate objectives.
- Product Design: on the product side, the focus is placed on the integration of ESG topics in underwriting (Impact Underwriting), a forward-looking price structure, promotion of risk mitigating behaviour and risk advice for preventative purposes.
- Protection Gap: the insurability against risks arising from natural catastrophes and the affordability of the corresponding insurance cover will become increasingly significant with regard to climate change. In this context, the funding gap is analysed in a first step, and a separate risk map drawn up regarding the protection gap on climate related risks at European level. The FMA is therefore not only focussing its attention on increasing insurance penetration. Proactive measures regarding vulnerability, the localisation of properties at risk as well as optimised insurance coverage are also significant elements for a resilient society.
- Climate stress tests: The FMA regularly conducts stress tests to analyse the risks and vulnerabilities in the insurance sector especially with regard to the current economic climate as well as for assessing the risk capacity of the individual insurance undertakings. For this purpose, the FMA also examines the impacts of future climate policy, the advent of low-carbon technologies, the economy’s level of adaptation or the occurrence of extreme events.
- Report on Green Products: In order to prevent the risk of greenwashing from the outset, at the start of 2023 the FMA has conducted analyses with a focus on product-specific disclosures Austrian life insurers conducted for the first time in accordance with Delegated Regulation (EU) 2022/1288. The findings show that the presentations on websites regarding sustainability-related disclosure are very heterogeneous. Almost ¾ (75%) of the IUs that offer life insurance products incorporate sustainability into their product design. Insurance undertakings currently primarily offer “green” products in the form of unit-linked life insurance plans. Disclosures are only made pursuant to Article 8 SFDR (products promoting environmental or social characteristics), but not in accordance with Article 9 SFDR (products, that pursue a sustainable investment). Six insurers do not consciously advertise using sustainability aspects. The circumstances under which a life insurance product is to be classified as being “green”, and therefore the SFDR’s specific disclosure requirements to which it is subject to are sometimes ambiguous. Article 8 SFDR focuses on the “promotion” of environmental and social characteristics, with the European Commission having a very broad understanding of the term “promotion”.
- ESG Dialogue: in accompanying insurance undertakings in the transition process in order to achieve the objectives of the European “Green Deal” the FMA has intensified its dialogue with the industry, in order to inform the insurers as early as possible about the current developments, the FMA’s initiatives and the results of the asset screenings.