CSRD for insurers
Timeline of reporting standards
The influence of various regulatory frameworks that guide sustainability reporting is growing as we aim for net-zero. These frameworks encourage organizations to incorporate sustainable practices into their operations and beyond.
Claims Carbon is heavily focused on the Corporate Sustainability Reporting Directive (CSRD) and the concept of double materiality, so that we can support our clients with their carbon accounting practices.
What is CSRD?
Previously known as the Non-Financial Reporting Directive (NFRD), the CSRD is a pillar of its sustainable finance strategy. The CSRD broadens the scope of non-financial reporting, requiring large companies to disclose information about their environmental, social, and governance (ESG) impacts. The directive aims to ensure that organizations' sustainability efforts are transparent, comparable, and reliable.
Why does CSRD matter for insurers?
The CSRD applies to all companies listed on the EU regulated markets, as well as large undertakings and credit institutions that are either EU companies or EU subsidiaries of non-EU companies, except for micro companies. CSRD also applies to companies fulfilling the following criterias: turnover of € 40 million, € 20 million in assets, and 250+ employees. Most insurers will therefore be required to follow the CSRD. Another new feature of CSRD is the mandatory third-party audit of the reported sustainability information.
What is double materiality?
Double materiality is a concept that stems from the EU's sustainable finance strategy. It states that companies should consider two perspectives when evaluating the materiality of sustainability matters:
Financial materiality: This perspective focuses on the impacts of sustainability risks on the reporting company's financial performance. For insurance companies, this covers climate-related risks to insured properties or health risks associated with pandemics.
Impact materiality: This perspective refers to the impacts of a company's operations, business relations, products, and stakeholders on society and the environment. In the insurance sector, this could, for example, refer to the carbon footprint of the company's products, like motor insurance, or from its investments.
Collectively both materialities are termed as ‘Double Materiality’ under CSRD. This dual lens of materiality assessment is not just about reporting but also aims to uncover strategic areas where the company can align its financial goals and sustainability performance.
Insurance of natural catastrophe (NatCat) risks is an issue for both finance and sustainability: the financial performance of insurers is negatively affected as natural disasters cause increasingly more damage to insured assets. However, these risks also present an opportunity to develop insurance products with better evaluation and a focus on climate adaptation and mitigation, improving an insurer’s both financial and sustainability performance.
How does double materiality apply to insurers?
The insurance industry has a dual role, both as an investor and an underwriter of risks. Insurers are exposed to sustainability risks and opportunities in their investment portfolios, as well as in their insurance products and services. Insurers also have an impact on sustainability matters through their investment decisions, risk management practices, product design, pricing, claims handling, and engagement with stakeholders.
By reporting on both financial and impact perspectives, insurers can provide a comprehensive and balanced view of their sustainability performance, position, and development. This can help them to improve their risk management, increase their transparency and accountability, and create long-term value for the company and society.
The CSRD is a game-changer for sustainability reporting in the EU. That is why Claims Carbon is here to provide software and services for setting net-zero targets and making sustainable insurance products. Reach out to us if you want to hear more!
