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.
We commend those who have already made significant progress and we will support others as they embark on this journey. The challenge ahead is great, but we know from experience that together we can meet it. 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. Let’s get to work. - Linda A. Lacewell, New York State Superintendent of Financial Services
Industry Guidance
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.
Public Consultation
Proposed Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change
Interested parties are invited to comment on the proposed Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change (PDF).
Deadline
The deadline for submitting comments is 11:59 p.m. EDT on Wednesday, June 23, 2021. Only comments received before this deadline will be considered.
Comment Template
Please use the template below to submit comments to [email protected] and provide relevant examples or data where appropriate.
- Comment Template (Excel Worksheet)
After the comment period closes, all comments, including the names and affiliations of the commenters, will be posted to this website. You should only submit comments that you wish to make available publicly.
Overview Webinar
DFS hosted a webinar on Thursday, April 8, 2021 to provide an overview of the proposed guidance.
- Recording of April 8, 2021 webinar on the overview of the proposed guidance
- Slides from the April 8, 2021 webinar on the 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.
Events
DFS Climate Change Webinar Series - Insurance
DFS Climate Change Webinar Series - Banking
Series 1: The Fundamentals of Financial Risks from Climate Change
Series 2: The Physical Risks from Climate Change in New York and the Northeast
Series 3: Clean Energy Financing for Community and Regional Banks
Resources
An Analysis of New York Domestic Insurers’ Exposure to Transition Risks and Opportunities from Climate Change
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.
DFS and 2DII will hold 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. Insurers are encouraged to invite their third-party asset managers to the webinars. Please see the Events section for more information.
Clean Energy Financing for Community and Regional Banks
Recording of the Webinar for Clean Energy Financing for Community and Regional Banks (WebEx)
Slides of the Webinar for Clean Energy Financing for Community and Regional Banks (PDF)
Physical Risks from Climate Change in New York and the Northeast
Recording of the Webinar for Physical Climate Risks in New York, Part 1: Overview on May 24, 2021 (WebEx)
Slides of the Webinar for Physical Climate Risks in New York, Part 1: Overview on May 24, 2021 (PDF)
Slides of the Webinar for Physical Climate Risks in New York, Part 2: Coastal Risk on May 26, 2021 (PDF)
The Fundamentals of Financial Risks from Climate Change
Recording of the Webinar for Community and Regional Banks on February 18, 2021 (WebEx)
Slides for the Webinar for Community and Regional Banks on February 18, 2021 (PDF)
Recording of the Webinar for Mortgage Banking Institutions on February 24, 2021 (WebEx)
Slides for the Webinar for Mortgage Banking Institutions on February 24, 2021 (PDF)
Questions?
Please direct any questions or comments to Dr. Yue (Nina) Chen, Director of Sustainability and Climate Initiatives, at [email protected].