Europe’s Green Deal: Insurance Europe responds to consultation

Hogan Lovells

Hogan Lovells

Insurance Europe indicated its support for the “ambitious objectives of the European Green Deal” as well as increasing the supply of long-term sustainable assets, making sustainability more “mainstream” and integrating ESG factors into portfolios.

Insurance Europe also floated the idea of subsidised premiums or public/private partnership to assist in market take-up of climate risk related insurance products and services, where “there is a lack of insurability through the private sector alone.”

The European Commission’s public consultation on its sustainable finance strategy closed on 15 July 2020. The strategy is intended to aid the objectives set out in the EU’s Green Deal, which sets 2050 as the date for Europe to become carbon neutral.

Insurance Europe, a trade body representing insurers in the EU, published its response to the consultation on 20 July 2020, making the following points.

Strengthening the foundations for sustainable finance

Insurance Europe called for a centralised electronic EU register of ESG data which would enable “better comparability, increased transparency and lower costs.” It argues that investors should also be able to view disclosures within the register.

Increasing opportunities for citizens, financial institutions and corporates

Insurance Europe expressed its support for digital finance solutions and “encourages the EU to develop the standards required for transparency of sustainable finance”. However, Insurance Europe cautioned that innovation must be consistent and developments should be beneficial to customers and firms alike. Moving sustainability into the “mainstream” will translate into increased green investment activity. But Insurance Europe identifies a number of roadblocks that will need to be overcome, including the current “lack of attractive long-term sustainable investments”, the use of ambiguous definitions and lack of a defining framework. It also suggested that the gap between risk/return and the risk appetite of insurers will have a role to play and that the public sector is likely to need to "lead by example” in the green transition.

Reducing and managing climate and environmental risks

Insurance Europe said its preference is to focus on a green rather than exclusionary brown taxonomy, which risks cutting off investment in activities that may be required for the transition stage. Insurance Europe notes the “serious consequences on insurability” that physical risks pose and it says that adaption through “effective prevention” will be central to fighting climate change. The group also noted that the EU could play a greater role in prudential framework for, by example, working on a centralised ESG database and by addressing what it perceives as flaws in Solvency II’s measurement of long-term business and assets. Further initiatives suggested in the response included the effective provision of climate-related loss and physical risk data across the EU.

Regarding the insurability of climate-related risks, Insurance Europe suggested that the EU could subsidise insurance premiums of specific products and services with low penetration rates and facilitate public-private partnerships where “there is a lack of insurability through the private sector alone.”

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