(Reuters) – Insurance companies need to close data gaps to be better prepared for the impact of climate change on their operations, and further work may be needed on how much capital they should have, the Bank of England said on Wednesday.
The BoE has just published the results of its first climate-related stress test of leading insurance companies and banks and concludes that they would do well in general.
“Closing data gaps for climate analysis is a priority for insurance companies to deliver effective climate risk management, and to innovate and develop products to support the transition to a more climate-sustainable path,” Stefan Claus, BoE Technical Division Manager, told the Association of British Insurers.
Another gap is that the capital framework does not sufficiently cover climate risks, and a conference on this issue is planned for the fourth quarter of this year, Claus said.
Stuart Kirk, HSBC Asset Management̵7;s head of responsible investment, caused a media storm last month after he said that central bank politicians exaggerated the financial risks of climate change, comments that led to his shutdown.
“Climate risk is a key challenge that we are dealing with and we will have to contend with,” Claus said in response to a question about whether he agreed with the comments.
“This is an absolute necessity, for companies to develop the ability to understand how to support the transition and to reduce and mitigate the potential disadvantages of primary risk.”
Nearly 90% of life insurance companies and more than half of UK public insurance companies are part of the UN’s Race to Zero ‘campaign to reduce CO2 emissions, ABI said in a statement on Wednesday, although it added more action was needed.
The Commerce Department urged the government to provide “meaningful reform” of the Solvency II regime that governs insurance companies’ capital to allow insurance companies to invest more in green infrastructure.