The European Insurance and Occupational Pensions Authority (EIOPA) has launched a consultation on guidance for running climate change materiality assessments and using climate change scenarios in an Own Risk and Solvency Assessment (ORSA).

The consultation, which closes on 10 February 2022, gives insights in relation to ORSAs where undertakings have the possibility to address climate change risks and provides examples using both dummy and real companies.

EIOPA has emphasised that the reinsurance industry will be impacted by climate change-related physical and transition risks, arguing that it is therefore important to encourage a "forward-looking management" of these risks to ensure the solvency and viability of the industry.

In light of this, the guidance provides a practical basis as to how to implement sustainable finance ambitions in practice.

It also includes case studies for materiality assessment of climate change scenarios, which are expected to help lower implementation costs for insurance undertakings, in particular small- and mid-sized ones, and improve the comparability of reported information.

The guidance follows EIOPA's previous recommendations, published in April 2021, which provided practical guidance for reinsurance undertakings on how to select and use climate change scenarios.

The latest consultation therefore gives further guidance on the application in the ORSA taking into account the size, nature and complexity of their climate change risk exposures.

EIOPA’s final guidance is expected in June 2022, after feedback from the consultation period and the pilot exercise, anticipated to start in March 2022, have been incorporated.

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