Financial Risks from Climate Change
We live in a complex world in which crises proliferate and magnify risks to our financial system. Climate change is increasing the frequency and intensity of extreme weather events, resulting in property damage, business disruption, and the devaluation of investments and other assets. To continue to thrive in the face of global competition, it is essential that New York financial institutions integrate consideration of the financial risks from climate change into their governance frameworks, risk management processes, and business strategies and start developing their approach to climate-related financial disclosure.
Because of the importance of this issue, DFS has joined the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), a group of central bankers and supervisors committed to managing financial risks from climate change globally, and the Sustainable Insurance Forum (SIF), an international network of insurance supervisors dedicated to helping the global insurance industry meet the challenges posed by climate change. DFS intends to continue engaging with all stakeholders to develop expert guidance in this critical area.
On September 22, 2020, DFS issued Circular Letter No. 15 (2020) to all New York-regulated domestic and foreign insurance companies outlining its expectations related to addressing the financial risks from climate change.
- Read the letter: September 22nd, 2020 - Climate Change and Financial Risks
On October 29, 2020, DFS issued an Industry Letter outlining its expectations related to addressing the financial risks from climate change to all New York-regulated banking organizations, branches and agencies of foreign banking organizations, mortgage bankers and servicers, and limited purpose trust companies, as well as New York-regulated non-depositories (other than New York-regulated mortgage bankers, mortgage servicers, and limited purpose trust companies), including New York regulated money transmitters, licensed lenders, sales finance companies, premium finance agencies, and virtual currency companies.
- Read the letter: October 29th, 2020 - Climate Change and Financial Risks
On February 9, 2021, DFS issued an industry letter alerting banking institutions subject to the New York Community Reinvestment Act that they may receive credit for financing activities that support the climate resiliency of low- and moderate-income, and underserved communities.
Proposed Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change
The public consultation period for the proposed Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change (PDF) is now closed.
DFS hosted a webinar on Thursday, April 8, 2021 to provide an overview of the proposed guidance.
FAQs for the Insurance Industry
The Circular Letter is addressed to all New York domestic and authorized foreign insurers. DFS believes that addressing the financial risks from climate change is critical to the solvency and liquidity of the insurance industry. DFS oversight over domestic and authorized foreign insurers, however, is not identical.
No. DFS does not currently plan to issue regulations pertaining to its climate-related supervisory activities, with the exception of Insurance Regulation 203, which we are proposing to amend to include climate change as one of the reasonably foreseeable and relevant material risks to be addressed by insurers’ enterprise risk management function.
As stated in the Circular Letter, questions pertaining to an insurer’s approach and activities related to the financial risks from climate change have been integrated into DFS’s examination process. Insurers will receive information requests related to climate in their First Day Letters to prepare for these exams. DFS issued Proposed Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change on March 25, 2021 for public comment. DFS will engage with the industry both during and after the comment period. DFS intends to formally adopt the guidance in the third quarter of 2021 after considering the comments and making any appropriate modifications.
No. The reference to “insurers’ assets” in DFS’s guidance does not apply to third party funds managed by insurers.
It may be done at either the holding company level or the insurer level.
Please refer to DFS’s Proposed Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change for more information on DFS’s expectations regarding scenario analysis and stress testing.
DFS encourages insurers to consider the financial risks from climate change as they perform their ORSAs but understands that it will take time for companies to include climate considerations in their ORSAs where appropriate. Please refer to DFS’s Proposed Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change for more information on DFS’s expectations regarding ORSAs.
The TCFD has become a globally adopted framework by regulators and industry alike. Since 2019, insurers may submit TCFD reports in lieu of responding to the NAIC Climate Risk Disclosure Survey, which some insurers have done. DFS understands that the four major components of TCFD (governance, strategy, risks, and metrics and targets) require different levels of sophistication and resources to complete. As such, DFS will continue to engage with industry participants on implementation of the various TCFD components. Please refer to DFS’s Proposed Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change for more information on DFS’s expectations regarding public disclosure.
In order to ensure open discussion during the seminars, recordings of the seminars have not been made public. However, most of the content covered during the seminars can be found in publicly available disclosure by several companies, including those represented by panelists in the DFS Climate Change Seminar Series. In particular, companies’ public sustainability or TCFD (Task Force on Climate-related Financial Disclosures) reports, CDP disclosures (a free account needs to be set up to access the CDP responses), and NAIC Climate Risk Disclosure Survey responses are good sources of information.
- CDP – Name of disclosure nonprofit CDP
- EIOPA – European Insurance and Occupational Pensions Authority
- ESG – Environmental, social, and governance
- EU – European Union
- EV – Electric vehicles
- IPCC - Intergovernmental Panel on Climate Change
- PCAF – The Partnership for Carbon Accounting Financials
- PACTA - Paris Agreement Capital Transition Assessment
- RCP - Representative Concentration Pathway
- SDS – Sustainable Development Scenario
- UN PRI – United Nations Principles for Responsible Investment
- TCFD – Task Force on Climate-related Financial Disclosures
Yes. Please use the Comment Template found in the Public Consultation section above to provide comments on our Proposed Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change.
DFS Climate Change Webinar Series - Insurance
DFS Climate Change Webinar Series - Banking
DFS has issued a report on “New York Domestic Insurers’ Management of the Financial Risks from Climate Change - An Analysis of NAIC Climate Risk Disclosure Survey Responses and Other Reporting.” The analysis covers 121 responses by insurers to the 2020 Survey and eight Task Force on Climate-Related Financial Disclosures reports submitted in 2020 by a total of 93 groups and non-affiliated companies, representing insurers with countrywide premiums ranging from $100 million to close to $100 billion. Survey questions cover how insurers incorporate climate risks into their governance, risk-management, and investment plans, as well as detail steps taken by insurers to engage key constituencies and policyholders on the topic of climate change.
Based on a framework that it developed, DFS rated insurers’ responses in one of four categories: “Yet to Start,” “Early Stage,” “Making Progress,” or “Good Progress.” DFS intends to continue reviewing insurers’ Survey responses and other disclosure materials to understand insurers’ overall status in identifying, assessing, and managing climate risks, identify good practices that can be shared with the industry, and support risk-based supervision. Insurers’ ratings will be used only for DFS’s supervisory purposes and will not be publicly disclosed.
DFS has issued a report analyzing New York domestic insurers’ exposure to the financial risks arising from society’s transition towards a low-carbon economy, furthering DFS’s efforts to support insurers in managing the financial risks from climate change. The report, “An Analysis of New York Domestic Insurers’ Exposure to Transition Risks and Opportunities from Climate Change,” is the result of a collaboration between DFS and the 2° Investing Initiative (2DII), an independent, non-profit think tank working to align the financial sector with international climate goals.
The report is intended to provide insurers with an example of a tool that can help them analyze their transition risks and inform actions to mitigate them. Working with DFS, 2DII analyzed the transition risks of New York domestic insurers by assessing the alignment of their equity and corporate bond portfolios using their 2019 Schedule D data against different climate scenarios. The report also outlines investment-related strategies that insurers can consider to mitigate their transition risk exposure.
Insurers can upload their portfolios to 2DII's online platform TransitionMonitor to generate individual reports. The tool's terms and conditions and confidentiality information can be found here. 2DII and TransitionMonitor are completely independent of DFS.
DFS and 2DII held two webinars for New York domestic insurers to provide an overview of the aggregate report and discuss how insurers might use their individual reports that were generated by 2DII for insurers included in the analysis.
There were no slides used for the July 12, 2021 webinar.
Please direct any questions or comments to Dr. Yue (Nina) Chen, Director of Sustainability and Climate Initiatives, at [email protected].