The Association of German Public Insurers (VöV hereafter, Verband öffentlicher Versicherer) plays an active part in promoting sustainable finance, in particular from the perspective of medium-sized and small insurers. 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. The public insurers support sustainability in all business areas and are therefore part of the investor initiative „PRI“ (Principles for Responsible Investment) under the auspices of the United Nations. The initiative is committed to the principles of responsible investing and emphasizes the importance of ecological, social and ethical principles.
Executive summary
- Sustainable finance needs to be seen in a broad context. First, as a highly complex topic, it comprises environmental, climate, social and governance factors for financial markets. Second, sustainable finance is only one part of EU and national overall sustainability strategies and in particular climate actions. Consequently, expectations on the contribution of financial markets to these policy targets must be realistic.
- Transparency and market-driven approaches can and will strengthen the role of the financial industry as accelerator of sustainability. Unrealistic expectations, burdensome bureaucracy and cost would be a wrong signal and compromise the core task of the insurance sector: to fulfill financial promises made to customers. Financial stability has to remain the main concern of financial regulation
- A pragmatic taxonomy of sustainable activities can be a valuable instrument as common language and has the potential to become a global standard for sustainable financial products. The scope is therefore clearly limited to products marketed as sustainable to avoid unnecessary burden for other products. It should be flexible and incorporate existing market standards, as for instance the Principles for Responsible Investment.
- Measures must always be appropriate for the nature, size and complexity of risks of a company. Rigid rules would be a significant burden and proportionality will be a key factor to help companies of all sizes to strengthen their sustainability. This is essential for primary legislation and equally for level II measures and supervisory practices.
- In the underwriting process, all risks should be assessed appropriately in two separate steps. The risk-based calculation of premiums and the reputational assessment of ESG factors underlie different reasons and methodologies. They should be strictly separated.
- Insurers need to take decisions not to insure companies due to ESG-reasons with great care. Failing to be insured (fire insurance, liability insurance etc.) has serious consequences on the companies, their financing, the employees and their regions. Contrary to corporate finance, where there are many different sources, insurance protection can only be offered by insurers.
- Sustainability risks are part of existing risk types and should therefore be taken into account with existing risk management tools. Additional tools are not required. A potential increase in sustainability risks is therefore best managed by consequently applying existing risk management systems.
- Capital requirements serve to strengthen financial stability and they are based on the risks of an investment. The introduction of a “green supporting factor”, in effect lowering the capital requirements for environmentally sustainable investments, or a “brown penalizing factor” would be detrimental to financial stability.
