EIOPA starts talking tough on climate change risks

The European Insurance and Occupational Pensions Authority (EIOPA) has issued its toughest warning yet to insurers to adjust their investment portfolios in order to mitigate the risks posed by climate change.

It warns that losses on equity investments in the high‐carbon sector can be high, in particular driven by investments in fossil fuel extraction, especially oil and gas.

In a detailed sensitivity analysis of climate-change related transition risks in the investment portfolio of European insurers the pan-European regulator explores current holdings of corporate bonds and equity that can be related to key climate-policy relevant sectors such as fossil fuel extraction, carbon‐intensive industries, vehicle production and the power sector. It also quantifies potential climate-change related transition risks and presents insights into possible impacts on these investments as economies transition away from fossil fuel-dependent energy production and carbon-intensive production. 

It acknowledges that the overall impact on the balance sheets of the insurance sector is counter‐balanced both by investments in renewable energy and the fact that insurers’ portfolios are generally well diversified.

EIOPA’s Chairman, Gabriel Bernardino (pictured), says it is working with national supervisors and expects insurers to follow up on the risks identified.

“Sustainable finance will remain a strategic area for EIOPA in coming years. The role of (re)insurers in addressing climate change is more important than ever. EIOPA expects the industry to manage and mitigate sustainability risks and adopt a sustainable approach to their investments based on principles of stewardship. This will not only support the insurance sector, but also contribute to making sure the financial sector plays a positive role in combatting climate change by channelling funds to more sustainable initiatives”.

Download the full report – Sensitivity_analysis_of_climate-change_related_transition_risks_-_EN.pdf