Insurance Europe and the European Insurance CFO Forum have affirmed their support for the EU’s Taxonomy Regulation in a recent position paper but have underscored the need for further adjustments to fully realize its environmental objectives. Introduced in July 2020, the Regulation aims to establish a standardized framework for categorizing economically sustainable activities.
While acknowledging the Regulation’s role in driving investments towards climate neutrality, the insurance industry has raised significant concerns regarding current reporting requirements for both underwriting and investment activities deemed ‘taxonomy-eligible’. Specifically, insurers have noted that the taxonomy’s coverage of investment portfolios remains limited, encompassing only a fraction of their overall holdings. This limitation hampers insurers’ ability to offer diversified portfolios that align comprehensively with taxonomy criteria, as highlighted in the industry’s position paper.
Furthermore, the industry has expressed reservations about the Regulation’s predominant focus on green activities, arguing that it sidelines crucial transition investments necessary for companies to shift towards net-zero emissions. Recognizing and supporting these transitional investments, insurers assert, are pivotal in achieving long-term sustainability goals.
Moreover, insurers have criticized the requirement to segregate premiums for climate-related risks, which often leads to low Key Performance Indicator (KPI) values, typically not exceeding 5% for primary insurers. This measure, they argue, fails to adequately reflect insurers’ broader contributions to sustainability, particularly when considering the pooling of various risks, such as climate risks alongside fire and theft risks in home insurance policies.
Lastly, the industry has highlighted challenges associated with reporting under the Regulation, citing inconsistencies and confusion stemming from delayed guidance issued by the European Commission in December 2023. This late release has impeded effective integration, potentially compromising the accuracy and reliability of the first mandatory reports due in 2024, analysts noted.
In summary, while supportive of the EU’s Taxonomy Regulation, the insurance industry calls for enhancements to address current limitations in reporting requirements and broaden the scope to encompass transition investments essential for achieving ambitious environmental targets.
