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Insurers Attack Treasury’s Data Probe, New York Issues Climate Risk Guidance, and More

December 23, 2022

The top five climate risk stories this week.

US insurers attack Treasury’s climate data probe

The US insurance industry is opposing a request from the Federal Insurance Office (FIO) to submit data on how physical climate risks — like hurricanes, wildfires, and floods — could disrupt the supply of property and casualty coverage.

The FIO, a unit of the US Treasury, issued a climate data collection proposal for public consultation on October 18. Its purpose: to furnish the agency with “consistent, granular, and comparable insurance data” that helps it understand how insurance coverage may be impacted by climate-related disasters. The consultation period closed December 20. 

In comment letters, trade groups blasted the data request as a weighty and unnecessary burden. The American Property Casualty Insurance Association (APCIA), which represents the industry on Capitol Hill and statehouses throughout the US, said the FIO should pull data from state regulators and data aggregators rather than firms themselves. At present, the FIO’s request would force companies to “manually retrieve or review large amounts of data, which is a time consuming and burdensome process,” the trade body said. APCIA also asked the agency to clarify aspects of its proposal so that the climate data it requested would be more “standardized and efficient for companies to provide and for FIO to analyze.”

The Insurance Information Institute, a think tank with over 60 insurance company members, also weighed in. It said the FIO’s data proposal could be “duplicative” or “misleading” since insurers already have to report lots of information in their statutory filings. The Institute also criticized the FIO’s demand for ZIP code-level data on physical risks, since ZIP codes do not describe geographic features of areas that may exacerbate flood, fire, or wind perils.

In contrast, more than 75 advocacy and environmental groups backed the FIO’s proposal. The groups, including Public Citizen, Greenpeace USA, and the National Housing Resource Center, also pressed the agency to focus on how policy rate hikes resulting from climate impacts could hurt low-income and underserved communities.

“Congress created [the FIO] with the authority to collect this data directly from insurers, and it’s past time for FIO to collect and publish this data to highlight a national insurance affordability crisis,” said Carly Fabian, policy advocate with Public Citizen’s climate program.

New York issues climate risk guidance for banks

Banks in New York state should take steps to manage their climate-related financial risks, new guidance out of the New York State Department of Financial Services (DFS) says.

Published Wednesday, the guidance offers banks of all sizes in New York a blueprint for identifying, measuring, and monitoring potential threats to their safety and soundness posed by physical climate impacts and the shift to a low-carbon economy. The guidance is out for public consultation until March 21, 2023.

“Regulators must anticipate and respond to new risks to operational resiliency and safety and soundness, jeopardizing an institution’s future,” said Superintendent Adrienne Harris, the DFS chief. “DFS is committed to working with all stakeholders to further refine expectations and finalize guidance appropriate for Institutions to address material climate-related financial risks.”  

DFS oversees state-chartered banks and the New York branches of foreign lenders including the UK’s Barclays and France’s BNP Paribas. The guidance says that climate risks threaten financial institutions of all sizes, and that smaller organizations are no less exposed than larger companies because they often have portfolios concentrated in certain business lines or geographic areas.

The DFS publication follows similar climate risk guidance issued by federal banking regulators, including most recently the Federal Reserve

ISSB forms advisory group on disclosure standards

The global standard-setter for sustainability- and climate-related financial disclosures has established an expert panel to help refine its proposed rules.

The Sustainability Standards Advisory Forum (SSAF), unveiled by the International Sustainability Standards Board (ISSB) on Wednesday, is made up of 13 representatives from individual countries and regional associations. Members include officials from the European Financial Reporting Advisory Group — which is responsible for drafting sustainability disclosure rules for European Union companies — and the UK Financial Reporting Council, which sets UK standards for accountants, auditors, and actuaries.

Representatives from the US Securities and Exchange Commission, the European Commission, and the International Organization of Securities Commissions will sit as observers on the forum. 

The SSAF is intended to provide “technical advice” to the ISSB on its standard-setting efforts and to better facilitate engagement with the regional and jurisdictional authorities it hopes will adopt its final disclosure rules.

“The jurisdictional perspective the experts in the SSAF will provide to our standard-setting work will be hugely important to ensuring our Standards can effectively deliver on capital market needs and build a truly global baseline,” said Emmanuel Faber, the ISSB’s chair.

Data issues hinder climate risk measurement — report

Patchy data and a lack of expertise are frustrating global financial institutions’ efforts to measure their climate risks, a report out of the Hong Kong Institute for Monetary and Financial Research (HKIMR) says.

Released Monday, the report presents the results of a survey covering 106 banks, insurers, and asset managers that have operations in Hong Kong. This found that over two-thirds of firms are challenged by the poor availability of climate data. Fifty-nine percent said the lack of standardized and consistent methodologies is a major issue, 41% the reliability and transparency of climate-related data, and 39% the comparability of this data.

Survey respondents also said that they have difficulties locating the climate data they want, and that available data is limited in its coverage, depth, and granularity. Small and medium-sized financial institutions are also challenged by the high cost of climate data services.

Insufficient climate expertise within companies is also a barrier to climate risk measurement. One-quarter of survey respondents said this was a major challenge. “Collecting, processing, and analysing climate-related data may necessitate a high degree of specialisation and a considerable amount of capacity, which are beyond the reach of many financial institutions, especially small and medium-sized institutions,” the report says.

HKIMR said that greater coordination between financial institutions and their regulators could improve climate risk measurement across the industry. Stronger local and international cooperation could also help. The report also said it is important to boost talent development and foster greater knowledge sharing.

Carbon credit network completes test run

Carbonplace, a global carbon credit transaction network backed by nine major banks, is on track to launch in early 2023 after completing a series of pilot transactions.

The network is intended to bring speed, security, and transparency to the trading of carbon credits between project suppliers and companies that want to offset their emissions. Its technology connects buyers and sellers, provides reliable records of carbon credit ownership to market participants, and handles compliance checks to ensure traders are aligned with know-your-customer and anti-money laundering rules. Carbonplace is built on distributed ledger technology, which also underpins popular cryptocurrencies like Bitcoin.

The pilot transactions were conducted in partnership with Climate Impact X, a carbon credit marketplace and exchange. Participants included carbon credit suppliers Carbon Growth Partners and Sustainable Carbon on the seller side, and Pavilion Energy, NatWest and Itaú Unibanco on the buyer side.  

“Resilient, flexible and modern infrastructure that ensures trust, access and transparency is essential for carbon markets to grow and function effectively,” said Bill Gilbert, head of carbon markets at NatWest.