Insurance Europe, the European insurance and reinsurance federation, has called for more “workable, clear and consistent disclosures” in its formal response to a consultation conducted by the European Supervisory Authorities (ESAs) around risk disclosure.
The response is on a consultation on the proposed Taxonomy Regulation. This establishes an EU-wide classification system or ‘framework’ intended to provide businesses and investors with a common language to identify to what degree economic activities can be considered environmentally sustainable.
It aims to “provide clarity and transparency on environmental sustainability to investors, financial institutions, companies and issuers thereby enabling informed decision-making in order to foster investments in environmentally sustainable activities.”
In essence, the proposed Taxonomy Regulation would give regulators the power to develop additional disclosure obligations for certain sustainable products, and is attempt to improve disclosure from the (re)insurance market on environmental, social and governance (ESG) risks.
On a positive note, Insurance Europe says the new regulation will create a single template for sustainability disclosures, which it says is welcome “as it will achieve consistency between the Sustainable Finance Disclosure Regulation and the Taxonomy Regulation, while making regulatory requirements more efficient”.
However, in order to achieve the Taxonomy’s objectives, some areas require urgent attention, it adds, highlighting the insufficient availability and reliability of ESG data, especially taxonomy-related information:
“Such information is limited at this stage. Insurers should therefore be allowed to comply using reasonable best efforts, so that they are not exposed to unnecessary liability risks. They should also not be forced to rely on expensive third-party data providers in order to comply with the proposed obligations.”
Other issues include perceived inconsistencies with other taxonomy-related work and a challenging implementation timeline, with the final single template expected to be published in the Official Journal very late in 2021, shortly before the actual proposed application date of 1 January 2022.
Perhaps most importantly, Insurance Europe says the draft ESG product templates are already overly complex and long:
“With the addition of taxonomy-related information, the final templates risk being too detailed, overly complex and long for customers.’
The federation also criticises the limited consumer testing of the disclosure templates, pointing out that testing was only performed in two countries, which is not representative of the variety of EU markets and consumers.