Last June, the Bank of England, the central bank of the UK, released an article on its response to climate change, as part of its second quarter 2017 bulletin.
Climate change, and society’s responses to it, present financial risks which impact upon the Bank of England’s objectives. The Bank’s response has two core elements. First, engaging with firms which face current climate-related risks, such as segments of the insurance industry. Second, enhancing the resilience of the UK financial system by supporting an orderly market transition.
The article explains financial risks from climate change in the context of physical risks, and transition risks arising from the process of adjustment towards a lower-carbon economy. It explains a third category—liability risks—which can arise from parties who have suffered loss or damage from the effects of climate change and seek compensation from those they hold responsible.
The article identifies three key international initiatives :
- The Financial Stability Board’s Task Force on Climate-related Financial Disclosures chaired by Michael Bloomberg, Founder of Bloomberg LP and Bloomberg Philanthropies, the UN Secretary-General’s Special Envoy for Cities and Climate Change, and three-term mayor of New York City
- The G20 Green Finance Study Group co-chaired by the governments of the UK and China and represented by the Bank of England and the People’s Bank of China, and supported by UN Environment as the Secretariat
- The Sustainable Insurance Forum (SIF) convened by UN Environment and insurance regulators and supervisors, chaired by California Insurance Commissioner, Dave Jones, and supported by UN Environment as the Secretariat
In the UN, the SIF is a joint initiative of UN Environment’s Principles for Sustainable Insurance Initiative (PSI) and Inquiry into the Design of a Financial System (UN Environment Inquiry). Launched in San Francisco, California last December, it currently has a work programme encompassing disclosure, access and affordability, climate risks, sustainable insurance roadmaps, disaster risk reduction, and capacity building.
Following its December 2016 launch, the SIF had its second meeting in Windsor in the UK last July. The SIF meeting was held back-to-back with the IAIS Committee Meetings and Global Seminar, also in Windsor.
One of the main topics at the SIF meeting was its response to the recommendations of the Financial Stability Board’s (FSB) Task Force on Climate-related Financial Disclosures (TCFD). A few weeks after the Windsor meeting, the SIF issued a statement supporting the TCFD recommendations (see press release)—the first group of financial regulators to do so.
This statement, which represents the consensus view of the SIF, is backed by a diverse group of insurance regulators from developed and developing country jurisdictions—from north to south, and east to west.
The SIF statement says that implementation of the TCFD recommendations is now key, and will require considerable capacity building in the insurance industry, particularly in developing countries. The SIF believes that regulators can play an important role in promoting widespread adoption of the recommendations, consistent with their individual mandates and policies.
Looking ahead, the SIF will have its third meeting this October in Kuala Lumpur, back-to-back with the IAIS Annual Conference. Both events will be hosted by Malaysia’s central bank. Meanwhile, the PSI will convene insurance market events and contribute to UNEP FI financial sector-wide events around the world—from Buenos Aires, New York and Geneva, to Johannesburg, Princeton and Tokyo—to advance sustainable insurance thinking and practice.
With the establishment of the SIF as a policy-facing initiative, the sustainable insurance agenda for regulators and supervisors is emerging, with an initial focus on climate change risks.
Access the full article as a LinkedIn post with images.