Canadian Underwriter

Swiss Re adopts climate-related financial disclosure recommendations

December 14, 2016   by Canadian Underwriter

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Swiss Re announced on Wednesday that it will adopt the climate-related financial disclosure recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD).

Blue ballpoint pen on a quarterly corporate financial report.Swiss Re helped develop the voluntary guidelines on climate risk reporting and is a member of the TCFD. “Swiss Re believes the guidelines will ensure more transparency on climate-related risks and help users and providers of climate-related financial disclosures, including lenders, insurers and investors, to more effectively measure and evaluate the financial implications of climate change,” the wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer said in a statement.

The TCFD, which was established by the Basel, Switzerland-based Financial Stability Board (FSB), has developed the guidelines for more consistent and comparable climate-related financial disclosures, to help providers as well as users of such disclosures make more informed decisions about the climate risks that could affect their business and investments. The TCFD has focused on disclosures related to the financial impacts of climate change on the reporting companies.

“We are just at the beginning of the transition towards a low carbon economy,” said David Cole, Swiss Re’s Group chief financial officer, in the statement. “As a reinsurer that has been researching the effects of climate change for almost 30 years, as a large asset owner and as a long-term investor, we have the chance to step up to the next level and help shape tomorrow’s solutions. There are clear benefits of having more transparency about climate-related risks and opportunities.”

For (re)insurers, climate-related risks and opportunities constitute a key topic linked to the industry’s core business, including weather-related risk transfer business, Swiss Re said. The scientific consensus is that a continuing rise in average global temperatures will have a significant effect on weather-related natural catastrophes and will account for an increasingly large share of natural catastrophe losses.

As part of adopting the TCFD’s recommendations, Swiss Re will expand its risk analysis, the statement said. This means that Swiss Re will include in its future annual financial report aggregated expected losses from weather-related catastrophes, a description of physical risks from changing frequencies and intensities of weather-related perils, as well as the impact of a 2°C scenario on the business, strategy and financial planning. Swiss Re will also report on the transition risks resulting from a reduction in insurance interest due to a decline in value, changing energy costs, or implementation of carbon regulation.

In adopting these guidelines as well as by taking into account the climate-related disclosures of its clients, Swiss Re will be able to more effectively measure its own transition risks and assess potential impacts of climate-related risks and opportunities on the organization’s business, strategy and financial planning. Secondly, as a global long-term investor, taking into account the additional climate-related disclosures of companies in which it invests will help Swiss Re make better informed investment decisions, the company said. At the same time, Swiss Re will give more information on the metrics its uses to assess climate-related risks and opportunities associated with its investments.

Aligned with Swiss Re’s focus on sustainable and attractive risk-adjusted returns, environmental, social and governance (ESG) criteria are already an integral part of Swiss Re’s investment approach and the company is also switching to ESB benchmarks for its listed equity and corporate bond portfolios.

Related: Sustainability in insurance gaining steam: KPMG speaker

“We were early in realizing that, as an investor, ESG factors can offer us potential long-term performance advantages,” Guido Fürer, Swiss Re’s Group chief investment officer, said in the statement, adding that the company was one of the first signatories to the Principles for Responsible Investment in 2007 and has “been active in the realm of ESG for almost a decade. Today’s adoption of these ESG benchmarks is a clear continuation of our strategy.”

In line with the intent of the FSB disclosure requirements, Swiss Re will start to publish climate-related financial disclosures in 2017 and gradually increase scope and granularity of disclosures over time, the statement said, adding that Swiss Re will describe the targets it uses to manage climate-related risks and opportunities and show its performance against these targets.

Established in December 2015 and chaired by Michael Bloomberg, the goal of the TCFD is to develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers and other stakeholders.

On Wednesday, the TCFD published its Recommendations of the Task Force on Climate-related Financial Disclosures report, which outlines a set of recommendations for “voluntary, decision-useful, climate-related disclosures to be made as part of mainstream filings” for a 60-day public consultation period, until Feb. 12, 2017. The recommendations, which focus on governance, strategy, risk management, and metrics and targets:

  • Are adoptable by companies of all types, across sectors and jurisdictions;
  • Elicit “decision-useful, forward-looking information on climate-related financial impacts:
  • Include describing the potential impact of different scenarios (including a 2°C scenario) on the organization’s business, strategy and financial planning; and
  • Include increased focus on risks and opportunities related to a transition to a lower-carbon economy.

FSB chair Mark Carney said that the disclosure recommendations “will give financial markets the information they need to manage risks, and seize opportunities, stemming from climate change. As a private sector solution a market issue, the Task Force has focused on the practical, material disclosures investors want and which capital-raising companies can compile.”

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