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Solvency II - Sustainable investments and climate change-related risks

Sep 15, 2021 2:09:26 PM / by Marina Silitrari

Along with proposing amendments to the reporting requirements, simplifications of quarterly reporting and eliminating of some reporting templates, the Consultation on the amendments of supervisory reporting and public disclosure documents requires additional information in a number of different areas. For sustainable investments and climate change related risks, three new metrics are introduced. Annex II, Instructions regarding reporting templates for individual undertakings, specifies the metrics to be reported in S.06.04. These are expressed in percentage points and defined as follows:

  1. Sustainable investments – proportion of the investments, in relation to total of investments, that are directed at funding, or associated with economic environmentally sustainable activities, according to the EU Taxonomy:

According to the Taxonomy Regulation an investment is considered sustainable if:

  1. it contributes substantially to one or more of the six environmental objectives:
    - Climate change mitigation
    - Climate change adaptation
    - The sustainable use and protection of water and marine resources
    - The transition to a circular economyPollution prevention and control
    - The protection and restoration of biodiversity and ecosystems
  2. it does not significantly harm any of the other environmental objectives set
  3. it is carried out in compliance with minimum (social) safeguards
  4. it complies with technical screening criteria established by the Commission through delegated acts 
  1. Climate change-related transition risk – KPI – proportion of investments exposed to transitional risk.

Own methodology can be used and to support the identification of investments exposed to transition risk, the four-digit level NACE codes shall be reported for NACE sections A to N in S.06.02

  1. Climate change-related physical risk – KPI – proportion of investments, in relation to total of investments, exposed to physical risks.

Own methodology can be used. To support the identification of properties exposed to physical risk, undertakings shall report on the latitude and longitude of the property location. If not possible, undertakings shall report the country ISO Alpha2 + postal code + city + street name + street number of the property in S.06.02

It is not clear at this stage exactly how insurers will assess exposure to transition risk and physical risk, or what data will be available to determine whether investments can be considered sustainable. This is still a new and evolving field which should be monitored going forwards to determine the most appropriate way to assess the risks.


Tags: QRT, Solvency II reporting, ESG, Consultation

Marina Silitrari

Written by Marina Silitrari