The Solvency II Review has introduced a requirement for (re)insurers to prepare a sustainability risk plan (SRP) as part of a suite of new measures supporting the European Union's sustainable finance agenda. There has been uncertainty associated with the new SRP requirements since the European Insurance and Occupational Pensions Authority (EIOPA) in December 2024 published its consultation paper on the proposal for Regulatory Technical Standards (RTS) on management of sustainability risks, including sustainability risk plans.
This paper, prepared specifically for the Irish market, discusses producing an SRP that meets the requirements of the amended Solvency II Directive. It reflects the interaction between the new requirements and the Central Bank of Ireland’s (CBI) March 2023 Guidance for (Re)Insurance Undertakings on Climate Change Risk. Most of the building blocks of the SRP—governance, the materiality assessment, scenario analysis and the integration of sustainability risk into the risk-management system—overlap heavily with the CBI Guidance. While Irish (re)insurers should be well placed to meet the new requirements, we detail some key considerations before the January 2027 deadline for having an SRP.
Highlights of the paper include the following.
- Background: Definition of sustainability risk in the directive, EIOPA’s view of augmenting the original framework and the SRP requirement.
- The amended Solvency II Directive: The new Level 1 requirements.
- Sustainability factors: The need to update processes and risk assessments to cater to wider sustainability factors.
- Scope and proportionality: How firms are expected to assess the materiality of climate change risk exposure, even in the absence of legally binding RTS.
- Time horizons: Information on how the amended Directive requires the SRP to address financial risks over the short, medium and long term.
- Next steps: Where Irish undertakings should focus in preparation for the new requirements, despite uncertainty around the publication of the final RTS.