Overview

The escalating frequency and severity of extreme weather-related events have focused financial services regulators (‘regulators’) to take action on climate-related risks and disclosure requirements within financial services. Regulators worldwide are moving to ensure that banks, insurers, Brokers and asset managers identify risk exposures from climate change and establish strategies and adjust business models to manage them. As the insurance landscape evolves due to growing regulatory pressures on climate change, Brokers need to change and adapt to this “new normal” as well.

Insurers and assets managers need to be cognisant of the climate risks which may impact their strategies and business model. In addition, client preferences, behaviours and attitudes are changing towards climate risk. Brokers are in a unique position as they often sit between these two stakeholders and are not only affected by the climate related impacts to their strategy and business model but also how they can be the conduit for their clients’ preferences.

Brokers have to consider changing their business models to take account of the risks and opportunities posed by climate change and the global transition to reducing carbon emissions, while at the same time responding to reputational and regulatory risk.

Changing regulation

Regulators in the European Union (‘EU’) have moved swiftly to create policies aimed at establishing climate risk at the heart of firms’ investment decisions, governance and risk management processes. From an Irish perspective, the Central Bank of Ireland (‘CBI’) issued a “Dear CEO” letter to regulated financial services providers regarding compliance with statutory and regulatory obligations on climate and broader environmental, social and governance (‘ESG’) issues.

On 2 August 2021, the final rules that amend sectoral legislation, i.e. Insurance Distribution Directive (‘IDD’), The Markets in Financial Instruments Directive II (‘MIFID II’), The Alternative Investment Fund Managers Directive (‘AIFMD’), Undertakings for the Collective Investment in Transferable Securities (‘UCITS’), Solvency II, were published in the Official Journal of the European Union (‘EU OJ’).

As a consequence, from 2 August 2022 insurance and financial Brokers will be required to comply with some further sustainability-related obligations. Moreover, from 10 March 2021 Brokers providing advice on insurance-based investment products (‘IBIPs’) and investment firms providing investment advice should make sure to comply with some additional sustainability-related disclosures towards their customers, in accordance with the Sustainable Finance Disclosures Regulation (‘SFDR’).

Collaborating on climate

Brokers Ireland and Deloitte have worked together to provide guidance to Brokers Ireland members on the growing number of climate considerations and above-mentioned regulations they are expected to address.

This guide provides an overview of what climate risk is and illustrates how it relates to Brokers.

It aims to:

• Provide an overview of how climate change will affect the insurance and investments industries; and the changes it will likely bring about.
• Outline the risks that both Insurance Brokers and Financial Brokers will face as a result of climate change.
• Set out high level guidance for required disclosures under the Sustainable Finance Disclosure Regulation (‘SFDR’) level 2 and insight into the amendments made to the Insurance Distribution Directive (‘IDD’) in relation to customer sustainability preferences
• Provide a high-level template or checklist that Brokers can consider in relation to climate risk and regulation (in the context of the “Dear CEO” letter)

Find out more:

Climate Risk: A Guide for Brokers is available on request.

To find out more, contact Marc Aboud – Director, Sustainability - at maboud@deloitte.ie.