Following the example of the Brazilian Central Bank, as well as the discussions on IAIS - International Association of Insurance Supervisors, on December 6, 2021, the Brazilian Superintendence of Private Insurance - SUSEP opened a public consultation to discuss a draft ruling that aims at including ESG (environmental, social and governance) criteria in the activities of insurance sector.
The main points of the draft Rule are the following:
1. it includes the sustainability risk analysis, which shall include the environmental, social and climate risks, on the decision making process for investments, risk subscription and hiring of suppliers and servide providers;
2. it mandates supervised entities to prepare a sustainability policy which shall secure the inclusion of the sustainability risks and opportunities on their day to day business and their relationship with third parties;
3. it defines the criteria for the effective implementation of the sustainability policy with transparency to the public and engagement of the high management of the supervised entities; and
4. it obliges supervised entities to publish, on an annual basis, a sustainability report that shall provide for the actions adopted by the supervised entities and describe the way such action shall affect their internal processes and controls.
But one may ask: which supervised entities shall abide the rule?
The rule will apply to insurers, open private pension entities, capitalization entities and local reinsurers.
Maybe the most sensitive point of the rule is the one that obliges insurers to, to the extent possible, include the sustainability risk assessment in the risk subscription processes. This means that the client's sustainability risk, or, more precisely, the way the clients handle their sustainability risks will impact the insurer's decision to accept or deny coverage or affect the pricing of the insurance product. That is, the better or worse way the client handles and deals with their own sustainability risks will affect their ability to get a cheaper or more expensive insurance coverage (or its ability to get coverage at all to its risks).
The rule adequately recognizes that the sustainability risks are not an independent class of risks, but perpasses and influences all tradicional financial risks insurers deal with, such as the liquidity risk, credit risk, market risk, operational risk and subscription risk.
Public consultation will be available until March 7, 2022.
Our firm is available to provide further clarification on the draft Rule or to assist you with this or any other ESG matter.