Insurance Europe has responded to a call for evidence by the European Insurance and Occupational Pensions Authority on sustainability in Pillar I of Solvency II.
Insurance Europe said that sustainable investments can often be good investment opportunities, if they match risk/return profile needs. In general, it noted that the attractiveness of any investment depends on a series of factors in the investment decision process and that environmental, social and governance (ESG) factors and risks are not enough on their own to consider a sustainable investment as a good investment opportunity.
It is vital that Solvency II remains a modern and risk-based framework and avoids imposing investment limits based on a simplistic approach of classifying all assets into either green or brown. Solvency II should measure the risks that insurers are exposed to when investing and - only if there is proof that ESG factors can have an impact on the risk profile of an investment – should these be reflected in the framework.
Insurance Europe also said it generally agrees with the explanation proposed by EIOPA for ESG risks and factors, but said that a series of barriers complicate the identification and assessment of climate change risks on a company-wide scale. These include the lack of clear rules for the classification of sustainable activities, lack of company-specific quantitative data, poor data quality and imprecise methodologies.
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