UNEP Principles for Sustainable Insurance

Introduced during the 2012 UN Conference on Sustainable Development, the PSI were created by UNEP over a six-year time span to “strengthen the insurance industry’s resilience and its contribution to building sustainable communities and economies.”¹ The PSI Initiative has been endorsed by the UN Secretary-General and comprises the largest collaboration between the UN and the insurance industry.

The PSI include four general principles:

• Principle 1: We will embed in our decision-making environmental, social and governance issues relevant to our insurance business.
• Principle 2: We will work together with our clients and business partners to raise awareness of environmental, social and governance issues, manage risk and develop solutions.
• Principle 3: We will work together with governments, regulators and other key stakeholders to promote widespread action across society on environmental, social and governance issues.
• Principle 4: We will demonstrate accountability and transparency in regularly disclosing publicly our progress in implementing the Principles.

Under each principle, specific actions are proposed for insurers, governments, and other stakeholders to incorporate key ESG issues into business strategies, risk management, product development, investment management, government policymaking, reporting frameworks, and public awareness.

As of 2018, the PSI have been adopted by approximately 120 organizations globally, including insurers accounting for more than 25 percent of world premiums and representing USD $14 trillion in assets under management.² Achim Steiner, the UN Under-Secretary-General and the UNEP Executive Director, has highlighted the importance of the PSI and called for more sectors to follow the example of the insurance industry in contributing to the development of a sustainable society:

“The PSI Initiative has laid out a global roadmap for the insurance industry's role in sustainable development. It is a shining example of how a global industry can put the environmental, social and economic dimensions of sustainable development at the heart of its business. The insurance industry is yet again at the forefront of creative policies and transformational solutions that can assist in the transition to a green economy. I encourage other industries to follow the decisive, inspiring and forward-looking leadership of the insurance industry.”³

While the PSI focus broadly on how different stakeholders in the industry can collaborate for sustainable development, this project emphasizes a more specific supervisory approach to ESG challenges, especially concerning climate change risks. Thus, the BWII selects regulator-related principles and actions from the PSI and integrates them with key policy recommendations provided by IAIS, developing 10 core ranking criteria for global insurance regulators on their performances in ESG factor incorporation:

1) Does the regulator require insurers’ strategies to account for environmental, social and governance (ESG) issues?

The first criterion measures the general interest of regulators in integrating ESG issues in their supervision of the insurance sector.

2) Does the regulator introduce disclosure obligations on how insurers integrate environmental, social and governance (ESG) factors (e.g. climate risk) in their risk processes?

3) Does the regulator incorporate climate-related risk in stress-testing?

The second and third criteria measure whether regulators require insurers to disclose ESG issues and incorporate climate-related risks in stress tests of the sector. Specifically attempting to understand whether the supervisor encourages insurers to follow the recommendations of the FSB Task Force on Climate–Related Financial Disclosures (TCFD), a global framework for financial institutions voluntarily disclosing climate-related information to investors, insurers and other stakeholders.

4) Does the regulator promote sustainable investment management practices?

5) Does the regulator encourage the development of ESG-related insurance products?

The fourth and fifth criteria focus on the promotion of sustainable investment and ESG-related product development in the insurance sector.

6) Does the regulator promote ESG educational programs on climate issues?

The sixth criterion measures whether the supervisor organizes or encourages events, conferences or industry seminars to educate insurance companies about the impact of ESG challenges on the sector and actions needed to reduce risk.

7) Does the regulator hold international multi-stakeholder consultations with the private sector and civil society around ESG risks?

This assesses regulators’ participation and contributions to international dialogue and community building.

8) Does the regulator conduct consultations with insurance companies on policies to promote industry sustainability?

9) Has the regulator shared the results of public consultation and developed policy recommendations?

10) Has the regulator implemented initiatives or policy recommendations?

Together, the final three scoring elements address the processes insurance regulators should follow to incorporate ESG issues into their supervisory framework:

• First, the regulator consults with insurers and other stakeholders to understand the ESG challenges and possible policy solutions. Consultations may include surveys, interviews, and meetings with industry leaders.
• Second, results are shared with the public while policy recommendations are provided by the regulator.
• Third, after careful review of these recommendations, formal policies and regulations are carried out with the expectation of compliance from the insurance industry.

Regulator Selection

There are a total of 14 entities selected in our ranking, including regulators in 11 countries and 3 international organizations. These entities have been selected because of their influence over the industry and their roles as active participants in sustainable insurance in most of the world’s geographic regions, including the North American, South American, Asian, European, and African regions.

Scoring Criteria

We give regulators scores based on how current information has indicated the seriousness of regulators’ incorporation of ESG issues into the governing of the sector:

• Zero Points: no/insufficient information about regulators’ push for sustainable insurance
• Five Points: sufficient information indicating the regulator's intention in the incorporation of ESG issues in insurance industry supervision
• Ten Points: adequate information indicating the regulator's active participation and substantial progress made to incorporate ESG issues in insurance sector supervision

The maximum possible score is 100 points—10 points for each of the 10 criteria.

A Large Gap among Global Regulators on Sustainable Insurance Promotion

The California Department of Insurance (CDI) is the most active regulator among those surveyed in promoting industry reform. The CDI scored 95 out of 100 by our criteria. Following the CDI, Autorité de Contrôle Prudentiel et de Résolution (ACPR) of France is ranked second while China Banking and Insurance Regulatory Commission (CBIRC) and the Monetary Authority of Singapore are both ranked third with a score of 85. Other leading regulators and organizations include the European Insurance and Occupational Pensions Authority (EIOPA), Bank of England Prudential Regulation Authority (PRA) and Morocco’s Autorité de Contrôle des Assurances et de la Prévoyance Sociale (ACAPS). These are the regulators that have not only conducted consultations with insurance companies to understand the impacts of ESG challenges on the insurance sector, but have also shared the results of public consultations, developed policy recommendations and implemented sustainable insurance policies. A significant amount of work has been done by regulators in these jurisdictions to incorporate ESG factors into the entire life cycle of the insurance business, such as the promotion of sustainable investment management practices and the inclusion of climate-related risk in stress-testing. Actions taken by these top-performing supervisory bodies are discussed in greater detail in case studies to showcase regulatory best practices that enhance the sector’s contribution to sustainability.

Insurance regulators in Sweden, the Netherlands, and Brazil have shown a moderate level of interest in taking ESG risks into the sector’s policymaking process. These regulators have either conducted initial research on assessing ESG risks’ impacts on the sector or encouraged insurers to disclose information on how ESG factors are integrated into the firm’s risk management processes. Yet compared to top quintile regulators, these insurance supervisors have been slow to implement policies managing ESG risks in the insurance sector.

Our analysis also indicates that the European Securities and Markets Authority (ESMA), Australian Prudential Regulation Authority (APRA), and Hong Kong Insurance Authority are still in the early stages of understanding ESG factors and their impact on the insurance sector. While some of these regulators might have endorsed the Principles of Sustainable Insurance (PSI), no concrete policies have been carried out to incorporate ESG factors into the governing of the sector. There is little publicly available information to suggest that these regulators have made substantial progress in integrating ESG considerations into their governance of the insurance sector.

There is a wide gap among insurance regulators and organizations in terms of facilitating reforms that align the insurance sector with sustainable development. While some regulators such as the California Department of Insurance have played an active role in incorporating ESG risks into the supervisory landscape and made significant progress in policy formulation, others have only recently started examining the issue.

The Urgency of Developing ESG-related Products and Promoting Responsible Investment

The average score of regulators and organizations in our ranking is 74 out of 100. Supervisors performed well on aspects such as including representatives of the private sector and civil society in multi-stakeholder consultations on ESG risks, and encouraging insurers to account for ESG issues. A large number of regulators have also conducted consultations with insurance companies on which policies promote industry sustainability.

However there remains significant room for improvement. The rankings reveal many areas that global insurance regulators have neglected. For example, most regulators and organizations have never encouraged the development of ESG-related insurance products. The average score for this criterion is only 3.6 out of 10. While many of the regulators conducted public consultations on the impacts of climate-related risks and provided policy recommendations, few have introduced official policies or initiatives to implement these recommendations. Only insurance regulators in California, France, and China were found to formulate and implement policies that incorporated ESG factors into their regulatory practices. Many regulators have also struggled to promote sustainable investment management practices, with supervisors earning an average score of only 5.7 out of 10. Regulators have also failed to encourage responsible investment among the insurance companies—a crucial means of leveraging the industry’s financial heft to mitigate practices in other areas of the economy that contribute to long-term risks.