EU strengthens sustainability in the insurance sector with new risk management obligations
A new European directive introduces the concepts of "sustainability risk" and "sustainability factors" into the risk management of (re)insurers, obliging them to integrate them into their systems and strategic plans. It also relaxes disclosure requirements for small insurers.
The European Union has taken a decisive step towards sustainability in the insurance sector with the recent publication of Directive (EU) 2025/2 of the European Parliament and of the Council of 27 November 2024 amending Directive 2009/138/EC as regards proportionality, quality of supervision, reporting, long-term guarantee measures, macro-prudential instruments, sustainability risks and group and cross-border supervision, and amending Directives 2002/87/EC and 2013/34/EU.
It is a legislative framework that introduces and defines two key concepts: "sustainability risk", understood as "any environmental, social or governance event or state which, if it were to occur, could have an actual or potential negative effect on the value of the investment or on the value of the liability", and "sustainability factors", aligned with Article 2(24) of Regulation (EU) 2019/2088.
Under this new approach, insurance and reinsurance undertakings will have to integrate these elements into their risk management systems. In particular, plans are required to identify, monitor and manage financial risks arising from sustainability factors in the short, medium and long term. Likewise, these risks must be considered when designing their investment policies, reinforcing the alignment of the sector with the European Union's sustainability objectives.
The regulation also introduces relevant changes to Directive 2013/34 to limit the sustainability disclosures to be made by certain "small and non-complex" (re)insurers and captive (re)insurers. This measure aims to reduce administrative burdens for these types of entities, while maintaining a proportionate approach to meet regulatory objectives without compromising the competitiveness of the sector.
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