On September 22, 2020, the Superintendent of the Department of Financial Services of New York announced several measures aimed at enhancing the state’s approach to financial risks from climate change.
The first measure puts New York domestic and foreign insurers on notice that DFS expects them to begin integrating climate-related factors in their business strategies, and will incorporate questions related to insurers’ approach to climate change during the 2021 oversight examinations process. To support them in their analysis of the effect of climate change on their operations, investments, liquidity, and reputation, DFS recommends that insurers consider engaging with one of several domestic and international initiatives — for example, the Task Force for Climate-related Financial Disclosures, which is working with industry to develop voluntary, consistent climate-related financial risk disclosures. The Superintendent also noted that DFS has become a supporting institution of the United Nations Environment Programme Finance Initiative Principles for Sustainable Insurance, which provides a framework for the insurance industry to address environmental, social and governance risks and opportunities.
In her circular to insurers, the Superintendent pointed to the estimated $334 billion in reconstruction costs likely to follow storm surges and hurricanes in New York City alone, and risks inherent in the transition to a low-carbon economy that could strand between $250 billion and $1.2 trillion in fossil fuel companies’ assets and cause financial and credit market losses, impacting insurers’ investments and liabilities in the long term.
The second measure announced by the Superintendent is a memorandum of understanding between DFS and the New York State Energy Research and Development Authority. Pursuant to the MOU, the financial sector will work with the state to address climate change and to support New York’s goals for environmental sustainability, creating innovative insurance and financial products that will encourage low-carbon technologies.
In 2019, DFS became the first financial regulator in the US to join the Network of Central Banks and Supervisors for Greening the Financial System, an organization established by eight central banks and supervisors in December 2017 with the objective of enhancing the role of the global financial system in managing risks and mobilizing capital for green and low-carbon investments, and promoting best practices to support the goals of the 2015 Paris Climate Agreement, from which the US has expressed the intention to withdraw.