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Nation’s First Financial Services Climate Guidance – It’s Not Too Late to Answer the Call for Comments

The New York State Department of Financial Services became the first regulator in the United States to issue proposed climate related guidance (NYSDFS Proposed Climate Change Risk Management Guidance for New York Domestic Insurers), and feedback is welcome through June 23rd. Aimed at domestic insurers and focused on managing the financial risks associated with climate change, the guidance is important for several reasons:

  • The guidance is comprehensive and incorporates explicit climate related expectations about board governance, risk appetite, organizational structure, business models, risk management, and public disclosure.
  • The proposal would mandate that insurers perform risk scenario analyses using short, medium, and long term planning horizons. Long term time horizons are expected to be “in the order of decades.”
  • The Department has hinted that insurance guidance will likely establish a template for additional supervisory statements for other groups overseen by NYSDFS, including banks.

The DFS notes the proposal is “also modeled on publications, guidance, and supervisory statements issued by international regulators…such as the Bank of England Prudential Regulatory Authority…the European Central Bank…the Dutch Central Bank” and others. No one should doubt that United States regulators are in a continuous dialogue with financial services supervisory agencies around the world, most of whom have been working in the climate space for quite some time.

Those that are new to climate change risk will appreciate the Department’s clear treatment of transition risks, which naturally arise from the anticipated transition to a low carbon economy. As you can imagine, this transition will likely result in a wide range of so-called stranded assets whose value will decline as they become less relevant. Coal mines, oil refineries, and fossil fuel fired generating plants are three obvious examples.

The guidance discusses board governance and climate change, and notes that the Department expects the board of directors to understand and assess relevant climate risks. It expects insurers to “designate a member or a committee of the board, as well as a member of senior management most suited to the task…to be responsible for the insurer’s assessment and management of climate risks” (page 6). That designation must take place even of an insurer determines that climate risk is not material to its business.

Risk Appetite

NYSDFS expects that each insurer will have a documented risk policy, adopted by its board, that describes how the firm monitors and manages climate risk in the context of the organization’s risk appetite statement. The department expects the policy to detail the firm’s risk tolerances and limits for financial risks. It states that the policy should consider such factors as:

  1. long-term financial interests of the insurer, and how decisions today affect future financial risks;
  2. results of scenario analysis and potentially stress testing for short-, medium-, and long-term horizons;
  3. uncertainty around the timing and channels through which climate risks may materialize; and
  4. sensitivity of both sides of the balance sheet to changes in key climate risk drivers and external conditions.

Organizational requirements specify a structure that fully accommodates climate risk assessments, compliance, controls, and audit functions, as well as a risk culture that supports accountability in climate risk-based decision making. The department also expects an “objective, independent and regular” (page 7) review of the procedures and functions for managing climate risks, with appropriate review by the board with appropriate actions to follow.

Public Disclosure

New York State already requires insurers with annual country-wide premiums of $100 million to respond to the National Association of Insurance Commissioners (NAIC) Climate Risk Disclosure Survey, which asks eight basic questions about an insurance company’s climate related activities. The department expects that disclosures, which may be qualitative at the start, will become more quantitative over a relatively short period of two to three years.

The department expects insurers to engage with the Task Force on Climate-related Financial Disclosures (TCFD) in developing their approach to climate-related disclosures.


NYDFS has made it clear that comments on the proposed regulation are welcome from any source, not simply from New York regulated entities and not just from insurers. There’s good reason to consider reviewing the proposal and responding. Regulators are working together globally to craft climate related guidance, and the NYSDFS initiative has produced the nation’s first climate related regulatory proposal. We believe that the many aspects of the guidance in its final form will serve as a template for additional regulation, perhaps even at a national level. Please take the time to review the NYSDFS language and respond at 




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