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Arendt – ESG duties in the insurance sector – a medley of multifaceted and highly technical requirements

Article written by Arendt as part of their sponsorship of ACA Insurance Days 2022.

ESG aspects have become one of the paramount areas of attention for insurance regulators.

On 25 August 2022, the Commissariat des Assurances (CAA) published a briefing note on the regulatory challenges linked to sustainable finance in the insurance sector (Briefing Note)(1). In this Briefing Note, the CAA draws attention to the main relevant applicable texts and specifies its expectations relating to the implementation of the latter.

Over the past few years, the European legislator has indeed been crafting an extensive and intricate regulatory framework to encourage actors of the insurance sector to integrate environmental, social and governance (ESG) aspects into their business strategies and operations.

The legal requirements deriving from this framework are vast and complex. This article provides a broad overview of these requirements and the main challenges they create. In particular, they range from disclosure obligations (A.) to rules on risk management (B.), suitability (C.), as well as product governance (D.).

A. Disclosure

Insurance undertakings are subject to a medley of ESG-related disclosure requirements, the extent of which varies depending on the undertaking’s size and the nature of its activities:

  • If they meet the size criteria defined in Directive 2014/95/EU of 22 October 2014 on the disclosure of non-financial and diversity information by certain large undertakings and groups (NFRD), insurance undertakings (which qualify as “public-interest entities” for NFRD purposes) are required to include, in their management report, a non-financial statement assessing how their business is affected by sustainability issues and how, conversely, it impacts the environment around them.
    Directive 2022/2464 of 14 December 2022 on corporate sustainability reporting (CSRD), which entered into force on 5th January 2023 and which replaces NFRD, broadens the scope and the extent of the disclosure requirements imposed under NFDR and introduces mandatory European Sustainability Reporting Standards to that effect. Member States are required to implement CSRD in the coming eighteen months.
  • In addition, insurance undertakings which make available insurance-based investment products (IBIPs) are also subject to Regulation 2019/2088 of 27 November 2019 on sustainability‐related disclosures in the financial services sector (SFDR). SFDR requires entities to disclose information on how they consider sustainability risks and impacts at both entity and product level. These disclosure requirements are further specified in Commission Delegated Regulation (EU) 2022/1288 of 6 April 2022.
  • The NFRD and the SFDR are both linked to Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment (EU Taxonomy Regulation), which requires institutions in-scope of NFRD or qualifying as “financial market participants” under SFDR to include, in the non-financial statement referred to in NFRD, information on how and to what extent their activities are associated with economic activities that qualify as environmentally sustainable. EU Taxonomy Regulation also adds additional “product-level” disclosure requirements for certain products identified under SFDR. These information requirements are further specified in Commission Delegated Regulation (EU) 2021/2178 of 6 July 2021.

The above requirements are further detailed in regulatory and implementing technical standards published by the European Commission, and in binding and non-binding guidance issued by the European Insurance and Occupational Pensions Authority (EIOPA) and the CAA.

Today, therefore, insurance undertakings face a jungle of disclosure requirements with diverging scopes and timelines for application.

Accordingly, the first challenge that insurance undertakings must tackle is to verify whether, and when, the various sets of requirements apply to them. Only then can they begin the necessary processes of:

  • adapting their internal policies and procedures,
  • updating their pre-contractual documentation and periodic reporting, as well as
  • reviewing and expanding the content of their websites.

B. Risk management

The legal framework deriving from the amended 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) has been amended to take into account the impact that sustainability risks may have on insurance undertakings’ overall risk management framework. Such amendments consist in changes to the rules laid down in Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance(2), requiring insurance undertakings in particular:

  • to integrate sustainability risks into their risk management system and function, into the assessment of their overall solvency needs as well as into their underwriting and remuneration policies; and
  • to integrate sustainability considerations when implementing the prudent person principle, assessing investment risks and setting investment strategies.

In this context, EIOPA issued in April 2021 an Opinion on the supervision of the use of climate change scenarios in the Own Risk and Solvency Assessment (ORSA), which specifies EIOPA’s expectations on the supervision of the integration of climate change risk scenarios in the ORSA (Opinion).(3) According to EIOPA, the ORSA should include the identification and assessment of any material climate change risk exposures. In this context, EIOPA privileges a forward-looking risk management approach. According to the Briefing Note published by the CAA, one of the main challenges will be conducting specific stress tests as part of the forward-looking ORSA. Because these tests may require actuarial projection models, special technical expertise may be needed.

In line with the forgoing, the European Commission proposed on 22 September 2021 a directive amending Solvency II to further adapt its framework to the European Green Deal, by i.a. to integrating a mandatory climate change impact study into the ORSA process and mandating EIOPA to study the potential impacts of climate change from a prudential perspective.

In August 2022, EIOPA published an application guidance on climate change materiality assessments and climate change scenarios in the ORSA, supporting its 2021 Opinion, and providing further guidance on the conduct of the climate change analysis in the ORSA.(4)

Putting these constantly evolving rules and guidance into practice will take a major effort by insurance undertakings, which must:

  • review and adapt existing business models;
  • update internal policies, procedures and processes; and
  • train key function holders and employees.

C. Suitability

In parallel to the legal framework deriving from Solvency II, the rules imposed under the amended Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (IDD) have also been amended to take into account sustainability considerations.

According to Commission Delegated Regulation (EU) 2021/1257 amending Delegated Regulations (EU) 2017/2358 and (EU) 2017/2359 as regards the integration of sustainability factors, risks and preferences into the product oversight and governance requirements for insurance undertakings and insurance distributors and into the rules on conduct of business and investment advice for insurance-based investment products (Delegated Regulation 2021/1257), insurance undertakings that provide advice on IBIPs are now obliged to integrate clients’ sustainability preferences into their suitability assessments.

Sustainability preferences are a (potential) client’s choices on whether, and to what extent, any of the following financial instruments will be integrated into their investment:

  • products with a minimum proportion of environmentally sustainable investments pursuant to the EU Taxonomy Regulation(5),
  • products with a minimum proportion of sustainable investments pursuant to the SFDR(6) and/or
  • products that consider principal adverse impacts on sustainability factors within the meaning of the SFDR(7).

Further valuable guidance on the practical implementation of the above is provided in the Guidance on the integration of sustainability preferences in the suitability assessment under the Insurance Distribution Directive, published by EIOPA on 20 July 2022(8).

In practice, therefore, insurance undertakings will have to enquire about their clients’ sustainability preferences before providing advice on an IBIP. These mandatory exchanges will rely heavily on confidence, as insurance undertakings will often need to educate clients to some degree to ensure that all relevant technical concepts are understood.

Adequate staff training will thus be key to enable insurance undertakings to respond to this situation and perform their duties effectively.

D. Product governance

Commission Delegated Directive 2021/1257 further requires insurance undertakings qualifying as manufacturers and distributors of insurance products within the meaning of the IDD framework to integrate sustainability factors and sustainability-related objectives into their product approval and review process, by:

  • taking into account clients’ sustainability-related objectives when defining their target markets,
  • specifying which sustainability factors an insurance product is considering and presenting them in a transparent manner and,
  • ensuring that an insurance product’s sustainability factors are (and remain) compatible with the sustainability-related objectives of the target market.

As a result, insurance undertakings qualifying as manufacturers and distributors of insurance products are required to review their entire product governance and oversight set-up to ensure that each step of the product development, approval, testing, monitoring and distribution process considers both the product’s impact on sustainability factors and clients’ sustainability-related objectives.


Insurance undertakings are expected, and trusted, to play a central role in growing and promoting sustainable finance, especially in terms of risk management, product offering and investment strategy.

At the same time, the sustainability-related requirements imposed on insurance undertakings are multifaceted and highly technical.

Accordingly, the key challenges for the insurance sector comprise ensuring that all relevant staff members and key function holders are trained in the new concepts and rules, and remaining able to implement and adjust to the ever-evolving regulatory requirements as they emerge.


  1. Briefing Note 22/9 on the regulatory challenges linked to sustainable finance.
  2. The relevant changes have been introduced via the Commission Delegated Regulation (EU) 2021/1256 of 21 April 2021 amending Delegated Regulation (EU) 2015/35 as regards the integration of sustainability risks in the governance of insurance and reinsurance undertakings.
  3. EIOPA-BoS-21-127.
  4. EIOPA-BoS-22/329.
  5. I.e. investments that (i) substantially contribute to one or more of the six environmental objectives defined in the EU Taxonomy, (ii) do not significantly harm any other environmental objective, (iii) comply with technical screening criteria established by the European Commission and (iv) comply with minimum social and labour standards.
  6. I.e. investments in an economic activity that (i) pursues an environmental or a social objective, provided (ii) that the relevant investments do not significantly harm any other objective and (iii) that such investments comply with minimum social and labour standards.
  7. I.e. environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters.
  8. EIOPA-BOS-22-391.

By Pierre-Michaël de Waersegger, Partner, Emmanuelle Mousel, Partner, and Sophie Selftsick, Advisor in the Insurance & Reinsurance and Banking & Financial Services practices at Arendt