The change of administration in the US will super-charge the hotly anticipated global climate change conference, COP26, which will now take place in Glasgow in November 2021.
In particular, it will accelerate the willingness of insurance and banking regulators around the world to co-operate in setting expectations and enhancing regulation regarding climate risk.
US regulators are increasingly focusing on the topic. For example the US Federal Reserve has applied to join other banking and insurance supervisors in the growing Network for Greening the Financial System (NGFS) – a “coalition of the willing” committed to managing financial risks from climate change. New York’s Department of Financial Services, which joined in 2019, recently told the state’s banks and insurers that it expects them to integrate climate risk into their governance, risk management and business strategies (broadly in line with the Bank of England’s approach). 2021 will see more developments on this front.
In Europe EIOPA is urging national regulators across the EU to ensure insurers take a longer-term view on the climate risk they face and integrate this into their risk assessment and strategic planning. Expect climate risk scenarios to be adopted across the EU and, ultimately, reporting to be made mandatory.
In Australia, Covid forced ASIC to pause its rollout of vulnerability assessments on climate change for banks and insurers. They should come out during 2021.
UK regulators have been leading the way. Authorised re/insurers will have to meet the expectations set out in Supervisory Statement SS3/19 by year end and the very largest of them will take part in the BoE’s Biennial Exploratory Scenario (BES), involving detailed climate stress tests. UK re/insurers will also be gearing up for TCFD-aligned disclosures, which will become mandatory for most of them by 2023.
Against this backdrop, we predict 2021 will be the year when re/insurers in many more countries will be making plans to improve climate governance, strategy and risk management.