The European Insurance and Occupational Pensions Authority (EIOPA) has published a sensitivity analysis of climate-related transition risks in the investment portfolios of European insurers.
The report considers the current holdings by European insurers of corporate bonds and equity that relate to key climate-policy related sectors such as fossil fuel extraction (i.e. coal mining), carbon‐intensive industries, vehicle production and the power sector. The analysis also considers the possible impact of transition away from such fossil fuel-dependent and carbon intensive production.
EIOPA expects insurers to manage and mitigate sustainability risks and adopt a sustainable approach to their investments. EIOPA has found from its analysis of data that the amount of exposure to transition risk is “in most cases … manageable compared to the overall holdings because insurers hold relatively well-diversified portfolios”. However, EIOPA has found that it is clear that some investments may “expose the insurance sector to transition risks in the event of a drastic alignment of the economies to an outcome in line with the aims of the Paris agreement to limit global warming”.
This report presents results of analysis that focuses on a “what-if” scenario which is not calibrated to represent severe stresses. Instead the analysis is designed to support the insurance industry to understand the potential impacts under a set of conditions and assumptions.