Arendt & Medernach – Solvency II sustainability risk plans: a practical roadmap on how to prepare

Article written by Arendt & Medernach as part of the sponsorship of ACA Insurance Days 2025, whose content is the sole responsibility of its author.

Why it matters

Climate change is resulting in an increase in the frequency and severity of natural disasters and extreme weather events, the impacts of which lead to higher losses for insurers and reinsurers.[1] Climate-related risks are a source of financial risk which can impact the resilience of insurance and reinsurance companies and, more globally, the financial stability.[2]

To align with the Green Deal, the EU Commission made a commitment to integrate sustainability risks into risk management systems and supervision of insurers and reinsurers in its 6 July 2021 communication entitled “Strategy for Financing the Transition to a Sustainable Economy”.

In this context, following the 2025 review of Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), insurers and reinsurers will be required to integrate sustainability risks into their risk management framework, taking into account the short, medium, and long term. In this context, Solvency II requires insurers and reinsurers to develop plans, addressing the financial risks arising in the short, medium, and long term from sustainability factors (Solvency II Plans).[3]

Solvency II defines the concept of sustainability risk as “an environmental, social or governance event or condition that, if it occurs, could cause an actual or potential negative impact on the value of the investment or on the value of the liability” and the concept of sustainability factors as “environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters”.[4]

Core elements of Solvency II Plans

The objectives

The aim of a Solvency II Plan is to protect the financial resilience of insurers and reinsurers by proactively identifying, assessing and managing sustainability-related financial risks, thereby safeguarding policyholder protection and overall financial stability. To this end, Solvency II Plans must include quantifiable targets and processes to monitor and address the financial risks arising in the short, medium, and long term from sustainability factors. They shall inter alia address financial risks arising from the transition to a sustainable economy in accordance with European Union and Member State regulatory objectives and regulations pertaining to sustainability factors, in particular the objectives to achieve climate neutrality in accordance with Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021establishing the framework for achieving climate neutrality (European Climate Law).[5]

As such, Solvency II Plans will document the actions taken by insurance and reinsurance companies to address sustainability risks. They will structure how undertakings manage these risks by setting objectives and metrics, establishing governance with clear board and senior management accountability, and defining implementation strategies that outline concrete steps, timelines, and resources for integrating sustainability risks into underwriting, investment, and capital planning.[6]

Supervisory authorities will review Solvency II Plans as part of the risk management system under Article 44, assessing whether sustainability risks are effectively identified, measured, monitored, and managed across underwriting, investments, asset-liability management, and other key areas, and whether governance and reporting are integrated into decision-making processes.

The targets, processes and actions addressing the sustainability risks shall be proportionate to the nature, scale, and complexity of such risks and the business model of the relevant undertaking.[7]

Interaction of the Solvency II Plans with other transition plans in the EU legislative framework

Directive (EU) 2022/2464 of 14 December 2022 as regards corporate sustainability reporting (CSRD), as amended by the Omnibus I package,[8] requires insurers and reinsurers falling in its scope to disclose, if such a plan exists, their plans to ensure that their business model and strategy are compatible with the transition to a sustainable economy and with the aim to limit global warming to 1.5°C in line with the Paris Agreement and the objective of achieving climate neutrality by 2050 as established in the European Climate Law (CSRD Transition Plans).[9]

While CSRD Transition Plans focus on the compatibility of the business model and of the strategy of the undertaking with a transition to a sustainable economy, Solvency II Plans focus on the management of sustainability risks. The Solvency II Plans are thus a tool aiming to ensure the soundness of the insurance and reinsurance undertakings and in fine the stability of the financial system.

If an insurance or a reinsurance undertaking publishes a CSRD Transition Plan, it shall develop a Solvency II Plan that is consistent with such CSRD Transition Plan by including consistent actions in respect of the business model and of the strategy, as well as common methodologies and assumptions in both plans.[10]

Technical standards and regulatory guidance

EIOPA shall publish regulatory technical standards describing among others the content of the Solvency II Plans, as well as the minimum standards and reference methodologies for the identification, measurement, management and monitoring of sustainability risks.[11] EIOPA published a consultation paper on the proposal for Regulatory Technical Standards on management of sustainability risks including sustainability risk plans on 4 December 2024.[12]

Based on Solvency II and the available guidance at this stage,[13] the Solvency II Plans will detail the insurer’s or reinsurer’s assessment of sustainability risks and their inclusion into their long-term strategy, risk appetite, capital requirements, and investment and underwriting strategy and decisions. They shall provide an overview of the strategic actions and risk management tools they use to manage sustainability risks and get ready for the transition towards a more sustainable economy.

This should also include, within the wider appreciation of prudential risks under Solvency II, the materiality assessment of climate change risks carried out for the own risk and solvency assessment (ORSA) and, where such risks are assessed as material, forward-looking scenarios to assess potential financial impacts.

What should insurers and reinsurers do to get ready?

The preparation of Solvency II Plans requires robust transition planning, where insurers and reinsurers ensure compliance with all the regulations and guidelines applicable to them in a consistent manner, in addition to developing processes to gather the necessary data.

The obligation is expected to apply from 30 January 2027, subject to the finalisation and application of the Solvency II review implementing measures.[14] As preparation of Solvency II Plans requires several prior actions and assessments, as well as gathering data, insurance and reinsurance companies are expected to initiate the process promptly.

On the basis of the available guidance,[15] the below items could already be considered to start the preparation process, building, where relevant, on the processes set up for CSRD Transition Plans.

Conclusion

Solvency II Plans embed sustainability risks into insurers’ and reinsurers’ prudential frameworks, ensuring resilience over the short, medium, and long term. While detailed rules are still pending, insurers and reinsurers should act now – leveraging on existing governance, risk management, and data collection and utilisation processes – to prepare proportionate plans.

Start now: map your sustainability risks, align governance, and prepare for supervisory review. Taking early action means a lower compliance risk and stronger resilience.

Authors

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[1] EIOPA news article, EIOPA recommends new risk factors for flood, windstorm and hail risk in insurers’ standard formula capital calibrations, 30 January 2025.

[2] IAIS, Application Paper on the supervision of climate-related risks in the insurance sector, April 2025.

[3] Article 44 of Solvency II.

[4] Article 13 (44) (45) of Solvency II.

[5] Article 44 of Solvency II.

[6] EIOPA consultation paper on the proposal for Regulatory Technical Standards on management of sustainability risks including sustainability risk plans (EIOPA-BoS-24-458); analogy with the EBA guidelines on the management of ESG risks (EBA/GL/2025/01).

[7] Article 44 of Solvency II.

[8] Omnibus I – COM(2025)81 (pending approval of the Council of Europe and publication in the Official Journal) has also amended Directive (EU) 2024/1760 on corporate sustainability due diligence (CSDDD) by deleting the obligation to adopt and put into effect a Paris Agreement-aligned climate transition plan.

[9] Article 19a of Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, as amended.

[10] Article 44 of Solvency II.

[11] Article 44 of Solvency II.

[12]  EIOPA consultation paper on the proposal for Regulatory Technical Standards on management of sustainability risks including sustainability risk plans (EIOPA-BoS-24-458).

[13] EIOPA consultation paper on the proposal for Regulatory Technical Standards on management of sustainability risks including sustainability risk plans (EIOPA-BoS-24-458); Forum for insurance transition to net zero report, Closing the gap: the emerging global agenda of transition plans and the need for insurance specific guidance, November 2024; analogy with the EBA guidelines on the management of ESG risks (EBA/GL/2025/01).

[14] Article 4 of Directive (EU) 2025/2 of the European Parliament and of the Council of 27 November 2024 amending Directive 2009/138/EC as regards proportionality, quality of supervision, reporting, long-term guarantee measures, macro-prudential tools, sustainability risks and group and cross-border supervision.

[15] EIOPA consultation paper on the proposal for Regulatory Technical Standards on management of sustainability risks including sustainability risk plans (EIOPA-BoS-24-458); Forum for insurance transition to net zero report, Closing the gap: the emerging global agenda of transition plans and the need for insurance specific guidance, November 2024; analogy with the EBA guidelines on the management of ESG risks (EBA/GL/2025/01).