ClientEarth response to HMT Solvency II consultation (July 2022)
This document sets out ClientEarth’s response to HM Treasury’s consultation on the review of Solvency II (the insurance prudential regulation framework).
The Solvency II review provides an opportunity to set the future direction for the UK prudential regime, and to ensure that the insurance sector both supports climate goals and is resilient to the long-term risks that climate change poses. However, the government’s proposals do not introduce any measures at all in relation to climate risks or supporting the UK’s climate targets.
Our consultation response includes proposals on:
- Capital requirements: Insurers should hold adequate capital to reflect the risks of assets related to the new exploration, expansion or development of fossil fuel projects and related infrastructure.
- Transition plans: Insurers should be required to adopt credible transition plans aligned with limiting warming to 1.5°C.
- Double materiality: Insurers should be required to identify and manage their impact on environmental and social matters (and not just manage the risks to their own business).
- Scenario analysis: Insurers should be expressly required to conduct long-term climate change scenario analysis as part of their Own Risk and Solvency Assessment.
- Lloyd’s of London: The Society of Lloyd’s has extensive powers to regulate the Lloyd’s of London market. The Society should have clear duties to support the market transitioning to net-zero emission by 2050, in this role.