- The EIOPA Report aims to evaluate the integration of sustainability risks into the Solvency II framework. The report responds to the mandate under Article 304c of the Solvency II Directive, assessing whether specific prudential treatments are necessary for assets and activities significantly tied to environmental or social objectives.
- The analysis focuses on three main areas: 1) In the first area, EIOPA explores the link between climate transition risks and market risks, such as equity, spread, and property risks. Using both historical data and forward-looking models, the analysis indicates heightened risk for carbon-intensive sectors (e.g., fossil fuels). EIOPA suggests differentiated capital treatments for these high-risk assets, reflecting their increased vulnerability to transition shocks; 2) The second focus area addresses non-life underwriting risks, particularly climate adaptation measures like anti-flood installations. While preliminary findings suggest these measures can reduce premium risk, data limitations prevent a robust conclusion on whether they warrant changes in prudential capital requirements; 3) The third area covers social risks, a relatively nascent topic in prudential regulation. EIOPA emphasizes that social risks could have similar prudential impacts as climate risks, such as potential financial losses from socially harmful activities. However, the lack of standardized data hinders a comprehensive analysis, suggesting the need for future development of risk assessment methodologies.
