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<\/a><\/p>\nIn November 2018, EIOPA released its first recommendations on integrating ESG\/climate risks under Solvency 2 and the Insurance Distribution Directive. They were subject to public consultation until the end of January. The recommendations deal mainly with pillar 2 (governance and risk management, ORSA). One of EIOPA\u2019s main proposals is that the risk management key function should be in charge of identifying and assessing sustainability risks, including within the ORSA framework, but also for this notion of sustainability risk to be integrated into the \u201cprudent person\u201d approach when choosing investments. The final technical proposals, developed in concertation with ESMA, will be released by the end of April 2019.<\/p>\n
In January 2019, EIOPA issued a questionnaire on how sustainability risks should be taken into account. Relies will be accepted until 8 March. Sustainability risks are defined by EIOPA as E, S, and G risks, as well as risks incurred in transitioning towards a low-carbon economy and physical risks (natural disasters in particular), which can affect both the assets and liabilities of companies that are subject to Solvency 2. The main focus is on climate change risk, which is incorporated into the environmental factor.<\/p>\n
The purpose of the questionnaire is to compile data on market participants to analyse how sustainability risks impact insurers\u2019 investments. The Commission has asked EIOPA to determine whether Solvency 2 contains incentives or obstacles to sustainable investment, particularly investments in non-rated bonds and loans, private equity and real estate.<\/p>\n
Keep in mind that national supervisory authorities, including ACPR in France, will also be compiling information independently and non-publicly.<\/p>\n
EIOPA\u2019s questionnaire [[https:\/\/ec.europa.eu\/eusurvey\/runner\/Public_call_for_evidence_for_an_opinion_on_sustainability_within_SII]] is highly precise, and, unlike the November consultation, it includes detailed questions on the risk profile of sustainable investments compared to other assets and how sustainable investments figure in asset allocations.<\/p>\n
Here are some examples of questions that caught our attention:<\/strong><\/p>\n After compiling the opinions and practices of the main market participants, EIOPA will release its technical opinion by 30 September 2019 so that the European Commission can consider proposals within the framework of the 2020 Solvency 2 review.<\/p><\/blockquote>\n So inclusion of ESG criteria will be one of the components of the Solvency 2 Reporting and Disclosure Review 2020, at least in pillar 2 (governance, risk management, ORSA), because we don\u2019t see how it would be possible at this point for pillar 1 (calculation of capital requirements) to include reduced shocks for assets having the highest ESG ratings, due to the lack of harmonisation in ESG ratings.<\/p>\n\n