A new PricewaterhouseCoopers (PwC) report has detailed the impact of evolving environmental, social, and governance (ESG) standards on Canadian insurance companies. The report called on insurers to build out their ESG reporting capabilities and capacities amid the changing compliance landscape.
ESG factors have become a focal point in the financial sector, driven by escalating climate risks, stakeholder concerns, and stricter regulatory expectations. This rise has led to a proliferation of ESG frameworks, standards, and reporting requirements, creating a complex regulatory landscape for companies to navigate, the PwC report said.
The International Sustainability Standards Board (ISSB) aims to harmonize global ESG reporting standards, building upon frameworks such as the Global Reporting Initiative (GRI), the Task Force on Climate-related Financial Disclosures (TCFD), and the Sustainability Accounting Standards Board (SASB).
In June 2023, the ISSB introduced its inaugural standards: IFRS S1 (general) and IFRS S2 (climate-related), which align with TCFD recommendations. These standards, currently voluntary, focus on governance, strategy, risk management, metrics, and targets. Future projects may include disclosures on biodiversity, ecosystems, and human capital, potentially influencing other reporting requirements.
In March 2023, OSFI published Guideline B-15, targeting climate risk management for Canadian federally regulated financial institutions (FRFIs), including insurance companies. Updated in March 2024 to align with IFRS S2, the guideline outlines expectations for governance, strategy, risk management, and the disclosure of climate-related metrics and targets.
For Internationally Active Insurance Groups (IAIGs) headquartered in Canada, OSFI expects full implementation of B-15 by 2024. By this deadline, IAIGs must establish governance structures for climate risk, integrate climate risk into their strategy, manage it per their risk appetite, and disclose Scope 1 and Scope 2 emissions. By 2025, IAIGs must disclose Scope 3 and insurance-associated emissions and outline their climate risk management targets and performance.
Canadian insurers also face potential ESG reporting requirements from global regulatory bodies. The EU’s Corporate Sustainability Reporting Directive (CSRD), effective in 2025, requires broader sustainability reporting than OSFI, covering various ESG aspects. Canadian insurers may fall under CSRD if they have EU listings, subsidiaries, or branches.
In the US, the Securities and Exchange Commission (SEC) adopted climate-related disclosure rules in March, focusing on risk management and governance without mandating Scope 3 emissions disclosures. Canadian companies registered with the SEC must comply with these rules, with phased implementation starting in 2025.
According to the PwC report, Canadian insurers should focus on OSFI’s Guideline B-15 to build a robust ESG reporting foundation. As global ESG standards evolve, these foundational practices will be crucial for meeting additional requirements.
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