September 22, 2020
DURING NEW YORK CLIMATE WEEK, DFS SUPERINTENDENT LINDA A. LACEWELL ANNOUNCES ACTIONS BOLSTERING DFS’S COMMITMENT TO ADDRESSING CLIMATE-RELATED FINANCIAL RISKS
DFS Expects New York Insurers to Begin Integrating Consideration of Financial Risks from Climate Change into their Governance Frameworks, Risk Management Processes, and Business Strategies
DFS Becomes a Supporting Institution of UN Principles for Sustainable Insurance
DFS and New York State Energy Research and Development Authority Sign MOU to Accelerate Low-Carbon Transition and Boost Climate Risk Cooperation and Solutions Among NYS Financial Institutions
As the effective date of the federal government’s withdrawal from the historic 2015 Paris climate agreement approaches and during New York Climate Week, Superintendent of Financial Services Linda A. Lacewell today announced several actions by the New York State Department of Financial Services (DFS) to bolster DFS’s commitment to addressing financial risks from climate change.
“The actions announced today build on Governor Cuomo’s leadership on climate change and provide direction on DFS’s expectations for managing the financial risks from climate change by the New York insurance industry, protecting consumers, and leveraging financial innovation to reach net zero faster,” said Superintendent Lacewell. “Mitigating the financial risks from climate change is a critical component of creating a stronger industry and a healthier and safer world for ourselves, our families, and future generations. There is no more time to wait.”
Climate change is accelerating, and the cost of climate-related natural disasters is increasing. The ten hottest years ever recorded have all occurred since 1998, with 2020 likely to be among the hottest. In May 2020, the concentration of carbon dioxide in the atmosphere increased to the highest level ever recorded in human history. This year’s record-breaking wildfire season on the West Coast is yet another reminder of the devastating consequences of climate change. Although no one is spared from the impact of climate change, it disproportionally affects disadvantaged communities and feeds into the vicious circle of social inequality.
Under Governor Cuomo’s leadership, New York State has become a global leader on combating climate change and promoting clean energy. Governor Cuomo currently serves as a co-chair of the United States Climate Alliance, a bipartisan coalition of 25 governors formed after the U.S. federal government decided to withdraw from the Paris climate agreement. In addition, the Governor signed the Climate Leadership and Community Protection Act (CLCPA), including the most ambitious and aggressive greenhouse gas reduction target in the nation, with New York aiming to reach a carbon neutral economy by 2050.
The DFS announcements today include:
DFS Expectations of New York Domestic and Foreign Insurers Relating to the Financial Risks from Climate Change
DFS expects all New York insurers to start integrating the consideration of the financial risks from climate change into their governance frameworks, risk management processes, and business strategies. Insurers are encouraged to analyze and describe how climate change affects their investments, liquidity, operations, reputation, and business strategy.
DFS expects New York insurers to start developing their approach to climate-related financial disclosure and consider engaging with the Task Force for Climate-related Financial Disclosures (TCFD) and other initiatives when doing so. TCFD is a framework widely adopted by international regulators and leading financial institutions. DFS will incorporate questions on insurers' approach and activities related to climate change during the Department’s examination process starting in 2021.
In this process, DFS recommends that insurers take a proportionate approach that reflects their exposure to the financial risks from climate change and the nature, scale, and complexity of their businesses. DFS’s actions are consistent with those of international regulators, including the Bank of England, and recommendations by the Network of Central Banks and Supervisors for Greening the Financial System (NGFS).
To support the industry, DFS will organize a series of global industry knowledge exchange webinars with its regulated institutions on the industry’s experience and challenges in managing the financial risks from climate change.
Supporting Sustainable Insurance Aims
DFS has become a supporting institution of the United Nations Environment Programme Finance Initiative (UNEP FI) Principles for Sustainable Insurance (PSI) to publicly demonstrate its support for sustainable insurance aims. Endorsed by the UN Secretary-General and insurance industry CEOs, the principles serve as a global framework for the insurance industry to address environmental, social and governance risks and opportunities.
“By signing the UN Principles for Sustainable Insurance (PSI), we welcome the leadership of the New York State Department of Financial Services in addressing sustainability risks, such as climate change, that are material to the insurance industry and wider financial sector,” said Butch Bacani, who leads the PSI Initiative at the UN Environment Programme. “New York is the heart of global finance and DFS's commitment to addressing climate change and other sustainability risks is crucial to having a financial system that will support the transition to a resilient, net-zero emissions economy.”
MOU with New York State Energy Research and Development Authority (NYSERDA)
Under a Memorandum of Understanding (MOU) announced today, DFS and NYSERDA will work together to leverage the state’s financial sector to address the effects of climate change, support the implementation of New York’s ambitious climate goals, and enhance New York communities’ climate resilience. DFS and NYSERDA intend to accelerate the creation of innovative insurance and financial products to speed up the development and deployment of key low-carbon technologies by providing technical support, regulatory guidance, and facilitating market access.
“Embracing these mechanisms that support Governor Cuomo’s comprehensive plan for transitioning to a carbon-neutral economy will help to identify cost-effective solutions for creating healthier communities and protecting our natural resources not just for today, but for generations to come,” said Doreen M. Harris, Acting President and CEO, NYSERDA. "We are proud to work with DFS to encourage insurance and financial markets to be leaders in our fight against climate change with products that support innovative technologies and processes that will increase market access for and deployment of emissions-reducing products for the benefit of all communities across the state.”
Today’s announcements build upon and advance DFS’s previous climate-related actions. In 2019, DFS became the first and only American financial regulator, state or federal, to join NGFS. DFS also joined the Sustainable Insurance Forum (SIF), an international network of insurance supervisors. In addition, DFS participates in the National Association of Insurance Commissioners’ Climate Risk Disclosure Survey, and requires regulated insurers to have disaster response and business continuity plans in place to safeguard their operations and ensure that they can continue serving customers during a disaster.