Review of Solvency II: reflection of climate risks in capital requirements

ClientEarth argues that current Solvency II Pillar 1 capital requirements do not adequately capture financial risks from climate change, including transition risks for fossil fuel assets and systemic disruption risks. The document highlights the UK Government's review of Solvency II, which acknowledges that the solvency capital requirement (SCR) and matching adjustment may need amendments to better reflect long-term climate risks and stranded assets. ClientEarth calls on the European Commission to implement similar enhancements to ensure the resilience of EU insurers and maintain a level playing field with the UK.

• Climate change presents four primary financial risks to the insurance sector: transition risks to asset portfolios (particularly fossil fuels), macro-economic 'disruption risk' from warming exceeding Paris Goals, the potential for risks to become uninsurable due to unpredictable severity or cost, and liability risks from climate litigation against energy majors.
• Investments in new fossil fuel projects are identified as having the highest transition risks because they are incompatible with the Paris Agreement goals.
• The International Energy Agency (IEA) has determined that to limit warming to 1.5°C, no further capital expenditure on new fossil fuel supply is possible beyond projects committed as of 2021, and the energy sector must reach net-zero globally by 2040.
• The UK Government's review of Solvency II indicates that the current solvency capital requirement (SCR) calculation is not well-suited for long-term climate risks due to its one-year time horizon.
• The UK Government has acknowledged that the matching adjustment may need to be enhanced to better reflect transition risks, specifically the risk of assets becoming 'stranded'.
• ClientEarth contends that current Solvency II Pillar 1 capital requirements fail to adequately capture climate financial risks and recommends that fossil fuel assets be excluded from the matching adjustment.

APA

ClientEarth (2021). Review of Solvency II: reflection of climate risks in capital requirements. https://www.clientearth.org/media/tgncmy53/letter-to-eu-commission-on-reflection-of-climate-risks-in-solvency-ii-capital-requirements.pdf

Chicago

ClientEarth. Review of Solvency II: reflection of climate risks in capital requirements. 2021. https://www.clientearth.org/media/tgncmy53/letter-to-eu-commission-on-reflection-of-climate-risks-in-solvency-ii-capital-requirements.pdf.

Wikipedia

{{cite press release |author=ClientEarth |title=Review of Solvency II: reflection of climate risks in capital requirements |date=9 July 2021 |url=https://www.clientearth.org/media/tgncmy53/letter-to-eu-commission-on-reflection-of-climate-risks-in-solvency-ii-capital-requirements.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@misc{clientearth2021review, author = {{ClientEarth}}, title = {{Review of Solvency II: reflection of climate risks in capital requirements}}, publisher = {ClientEarth}, year = {2021}, month = jul, url = {https://www.clientearth.org/media/tgncmy53/letter-to-eu-commission-on-reflection-of-climate-risks-in-solvency-ii-capital-requirements.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }