A sense of urgency on ESG

29-11-2022

A sense of urgency on ESG

Bermuda’s re/insurers are discovering a sense of urgency around ESG benchmarks and standards, driven partly by multiple proposed new regulations but also a sense of doing the right thing, says PwC.

Marisa Savage, partner and environmental, social and corporate governance (ESG) leader, PwC Bermuda, tells Bermuda:Re+ILS that new regulations, combined with an enhanced focus from investors is compelling re/insurers to adopt a structured approach to the way in which they think about and tackle ESG, particularly with respect to climate risk.

Organisations are interested in discussing ESG, including strategy, governance and reporting standards, and seeking clarity as they tackle what can be a complex and ever-changing set of guidelines.

Savage points out that there are now four separate regulatory reporting standards that Bermuda re/insurers should be aware of. They may not need to comply with them all, depending on their business activities and global footprint, and some will overlap; nevertheless, they should be aware of them and prepare to comply where needed.

“The BMA has set the objective that the guidance needs to be fully adopted by 2025.”

Multiple standards

The first regulation is a proposed guidance note issued by the Bermuda Monetary Authority (BMA) in August titled “Management of Climate Change Risk for Commercial Insurers”. The guidance note provides details on the BMA’s expectations regarding climate risk in the context of governance and risk management requirements. It does not apply to captives.

“It covers the governance of climate risk management, the actual risk management and identification process and details the reporting and risk assessments that re/insurers will have to file with the authority. It also covers climate scenario analysis.

“The BMA has set the objective that the guidance needs to be fully adopted by 2025 on a proportionality basis. What is needed to comply will be different for a large multinational reinsurer compared with a local domestic insurer,” Savage says.

The second, which will apply to Bermuda re/insurers with US Securities and Exchange Commission (SEC) reporting requirements, is the SEC’s statement in March 2022 on proposed mandatory climate risk disclosures. The regulator wants certain disclosures around the risks and impact of climate change made in 10-K filings. These disclosures will be introduced and some disclosures audited on a phased basis, she says, but re/insurers should start preparing for that now.

The third relates to two exposure drafts issued by the International Sustainability Standards Board earlier in 2022, relevant for re/insurers reporting under International Financial Reporting Standards (IFRS). The proposed IFRS S1 General Requirements exposure draft would require companies to disclose information about all of their significant sustainability-related risks and opportunities.

The proposed IFRS S2 Climate Exposure Draft focuses on climate-related risks and opportunities. It incorporates the recommendations of the Task Force on Climate-related Financial Disclosures and includes metrics tailored to industry classifications derived from the industry-based Sustainability Accounting Standards Board Standards.

Finally, the European Financial Reporting Advisory Group has unveiled a sustainability standards roadmap, designed to help companies meet the adoption of EU sustainability reporting standards. “This one is broader than climate alone and addresses all aspects of ESG, but it is yet another consideration for re/insurers with a European nexus,” Savage explains.

“We can help clients understand the next steps they can take.”

Teamwork is key

PwC, ESG

Bermuda Re