The Association of German Public Insurers (VöV hereafter, Verband öffentlicher Versicherer) welcomes the consultation on the TEG report on EU Taxonomy . As Germany’s second largest primary insurance provider with a strong regional presence, the group is committed to constructive dialogue in the interests of all market participants and of a stable European and global insurance sector.

General remarks on Sustainable Finance
The VöV strongly supports voluntary and market driven approaches to even further incorporate sustainability into the business models of insurers. German public insurers already offer a range of sustainable insurance products, disclose their sustainability aspects and align their investment with respect to environmental, social and governance (ESG) criteria. The VöV notes that voluntary, market driven developments are key to build a more sustainable financial sector.  Best practices and facultative guidance on a holistic treatment of ESG factors are therefore welcome, whereas mandatory and inflexible rules would potentially be significant obstacles to strengthen sustainability in the insurance sector, in particular for small and medium-sized companies. The VöV supports an open approach that allows for sufficient flexibility in strengthening ESG considerations on a voluntary basis. This openness is essential to help insurers of all sizes to succeed in this endeavour. Rigid rules would be a significant burden and proportionality will be a key factor.

Strictly align capital requirements with the risk of investments
The introduction of a “green supporting factor”, in effect lowering the capital requirements for environmentally sustainable investments, has been suggested repeatedly in the course of the debate on sustainable finance and in the Action Plan of 8 March 2018. The VöV explicitly reject this proposal in this form. Capital requirements serve to strengthen financial stability and are based on the risks of an investment. Classifying an investment as environmentally sustainable gives no indication as to the risks of a project. Lowering capital requirements for environmentally sustainable investments without precisely analysing the associated risks is dangerous from a financial stability perspective and not appropriate.

German Public Insurers are also categorically opposed to increasing capital requirements for economic activities that are classified as not being environmentally sustainable (“brown penalizing factor”). While disadvantaging other types of investment, this approach would not even foster green investment. It would also influence other policy areas that the European Union has identified as priority areas and would conflict with the objectives of these policy areas. Furthermore, European companies would be put at a clear disadvantage in global competition.

Ensure proportionality and do not overburden insurers
The VöV sees the taxonomy as helpful tool and important common language for financial products marketed as sustainable. It will help to avoid greenwashing and potentially create a global standard for sustainable financial products. The scope of the taxonomy is therefore quite clear. After a transition period with non-binding guidelines, it should be mandatory for all products made available as sustainable. Providers of general financial products should be able to use it on a voluntary basis. For this reason, insurers that do not offer financial products marketed as sustainable must by no means be required to disclose according to the taxonomy. The disclosure regulation already sets out extensive disclosure requirements and the scope should not be extended. Further obligations would be a bureaucratic and unproportional duplication, in particular for small and medium-sized companies.

The VöV advocates a grandfathering clause for all financial products that were marketed as sustainable before the applicability of the taxonomy. Whereas new products should follow the taxonomy, it would be unproportional to change existing ones that were classified as sustainable with respect to other sustainable criteria and metrics that existed before the taxonomy.

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