EIOPA consults on the prudential treatment of sustainability risks

EIOPA has initiated a consultation on the prudential treatment of sustainability risks, marking the second phase in its approach under the Solvency II Directive. This directive mandates EIOPA to assess whether a dedicated prudential treatment for assets or activities associated substantially with environmental or social objectives is justified. The consultation paper follows a risk- and evidence-based approach, assessing the potential for prudential treatment of risks associated with environmental and social factors.
EIOPA emphasizes a risk- and evidence-based approach in its analyses. Indeed, sustainability risks are increasingly relevant for insurers‘ investment and underwriting activities, and EIOPA aims to ensure that the prudential framework adequately considers these risks to protect consumers and safeguard financial stability. The paper acknowledges methodological limitations in assessing sustainability risks from a prudential perspective and refrains from recommending policy options in all areas studied.
The three conceptual areas analyzed in the consultation paper include market risks and transition risks, non-life underwriting risks and climate change adaptation, and social risks. In the first area, EIOPA assesses the potential link between prudential market risks (equity, spread, and property risk) and transition risks related to climate change. The second area focuses on the potential link between non-life underwriting risks and climate-related risk prevention measures, specifically climate change adaptation. The third area explores the potential link between social risks and prudential risks, including market and underwriting risks.
The consultation aims to gather insights and feedback from stakeholders to further inform EIOPA’s assessment and subsequent report to the EC under the Solvency II Directive. The consultation process invites stakeholders to provide feedback by 22 March 2024, via the EU Survey. An online event dedicated to the consultation is scheduled for 7 February 2024.