UNDP’s Sustainable Insurance Forum Unveils Report on Insurance Sector’s Role in Climate Transition

New Report Highlights Early Stages of Supervisory Thinking on Insurance-related Transition Plans and Proposes Key Steps to Facilitate Progress Toward a Net-Zero Economy.

On Finance Day at COP29, the United Nations Development Programme’s (UNDP) Sustainable Insurance Forum (SIF) released a pivotal new report titled "Supervisory Thinking on Insurance-related Climate Transition Plans." The comprehensive document sheds light on the current landscape of supervisory efforts to guide the insurance sector's shift towards a net-zero future and addresses the challenges of developing regulatory frameworks to support this transition. Key Findings of the Report:

Early-Stage Supervisory Thinking

The report reveals that insurance supervisors are still in the early stages of developing their thinking around insurers’ climate transition plans. While there is broad recognition of the importance of these plans as part of insurers’ overall risk management strategies, clear supervisory requirements and guidance are yet to be established by the majority of supervisory authorities globally.

Complexity in Regulatory Development

The document outlines several challenges hindering the development of effective supervisory frameworks for transition plans. Among these are uncertainties regarding the roles of financial regulators and supervisors, issues with data adequacy and accessibility, and the lack of internationally standardized guidance for the insurance sector. These gaps make it difficult for insurance companies to know precisely what is required of them as they prepare for the transition to a low-carbon economy.

Support for Insurers’ Transition

The report emphasizes the pivotal role that insurance supervisors can play in supporting insurers’ transition to net-zero. This includes providing clear guidance on transition metrics, facilitating capacity building, and enhancing insurers' access to relevant climate data. Supervisors, the report suggests, can create a more supportive environment that encourages insurers to develop credible and comprehensive transition plans.

Marcos Neto, UN Assistant Secretary-General and Director of UNDP’s Bureau of Policy and Programme Support, commented, “The SIF Transition Plans Working Group’s report urges insurance supervisors to take immediate and proactive measures to guide the global transition to a sustainable economy. As many supervisors are just beginning to tackle the complexities of transition planning, their role is paramount. By providing clear direction, enhancing data transparency, and fostering collaboration, supervisors can create an environment conducive to the development of credible transition plans.”

Proposed Next Steps for Supervisory Authorities:

The report outlines several key actions that insurance supervisors must take to accelerate the industry’s progress towards sustainable practices:

Enhance Coordination Among Authorities – Establish platforms for the sharing of best practices and the alignment of supervisory frameworks across jurisdictions.

Advocate for an International Baseline – Push for the creation of global, standardized guidelines to provide clarity for insurers and enhance international cooperation.

Assist Regulated Entities with Data Challenges – Help insurers overcome difficulties related to data availability and quality, crucial for tracking and reporting on their climate transition strategies.

Collaborate on Capacity Building – Encourage partnerships between regulators and insurers to pool resources for initiatives aimed at improving the capacity of insurers to meet climate-related objectives.

Daniel Wang, Chair of UNDP’s SIF, highlighted the vital leadership role of insurance supervisors in the transition process. “Insurance supervisors have a vital leadership role to play by engaging and working with the insurance industry amidst the global transition to a net-zero economy. The collective progress made now will contribute to a sustainable future. I extend my sincere thanks to my fellow SIF members, and in particular the SIF Transition Plans Working Group, for this critical work. Much more needs to be done on this journey and we all need to press on. The development of credible climate transition plans will help bring about a more resilient and sustainable financial system for all.”

The report calls for urgent action from both insurance regulators and the insurance industry to ensure that the sector is well-prepared for the challenges and opportunities of the climate transition. By fostering collaboration and addressing the regulatory gaps highlighted in the report, both supervisors and insurers can help accelerate the development of credible climate transition plans, which are essential for building a resilient financial system that aligns with global climate goals.