Posted on 18 July 2023
Today, the Economic Affairs committee in the European Parliament voted on a law, known as Solvency II, which regulates the insurance and reinsurance industry to ensure that it has sufficient financial resources to meet its obligations and enhance the sector’s overall stability and solvency.
WWF has been trying to ensure that the law requires insurers to set aside additional capital when they invest in environmentally harmful projects - a policy known as the One-for-One rule
- as there are higher financial risks attached to these projects. This rule would safeguard financial stability, thereby ensuring that taxpayers and governments do not need to bail out insurers. However, MEPs have failed to include this requirement, giving insurers a free pass to make financially risky investments in areas such as new fossil fuels, amongst others.
Henry Eviston, Sustainable Finance Policy Officer at WWF European Policy Office, said:
“Investing in new fossil fuel projects is a recipe for environmental disaster and for a financial crisis. Insurers should have been required to set aside one euro for every euro they put into these risky investments, in order to absorb any losses from them. No taxpayer wants to bail out a company that takes unnecessary and avoidable risks.”
On a more positive note, WWF welcomes the requirement on insurers to set up transition plans and targets, based on disclosures from the Corporate Sustainability Reporting Directive, to address the risks arising from Environmental, Social, and Governance (ESG) factors, such as new regulations to speed up the green transition.
“The requirement on insurers to set up transition plans is an important step but it is just the start. The EU must make sure these plans include short-term targets that are truly in line with the Paris Agreement and that insurers actually follow them - or face regulatory consequences from supervisors,” said Henry Eviston, Sustainable Finance Policy Officer at WWF European Policy Office.
WWF advises that insurers should be required to adopt a
transition plan covering underwriting and investment, with implementing actions and specific science-based short-, medium- and long-term targets, including absolute emission greenhouse gas reduction targets for 2025 and 2030.
Furthermore, the Parliament introduced a major loophole by not requiring
insurers to manage ESG risks linked to the activities they insure. The new compromise only requires insurers to address the risks arising from their own investment portfolio - even though insurance is the main reason that insurers and reinsurers exist and this side of the business is increasingly affected by payouts for floods, wildfires, droughts, and other environmental risks. WWF calls on legislators to close this loophole in the trilogue negotiations.