Jones encourages others to follow lead and adopt climate-related financial disclosure recommendations
News: 2018 Press Release
SACRAMENTO, Calif. — California Insurance Commissioner Dave Jones welcomes the Task Force on Climate-related Financial Disclosures (TCFD) 2018 Status Report, released today in New York City during Climate Week NYC. Jones, an early endorser of the TCFD recommendations on Climate-related Financial Disclosures, is the first financial regulator in the United States to adopt the TCFD recommendation to use scenario analysis to assess insurers' exposure to climate-related transition risk. Jones has undertaken a number of initiatives as Insurance Commissioner designed to increase insurers understanding and focus on climate-related risk.
"Climate change poses risks to the financial sector, including insurance companies," said Insurance Commissioner Dave Jones. "Widespread adoption of the TCFD climate risk disclosure recommendations will help ensure climate-related risks are routinely considered in business and investment decisions and encourage an effective dialogue between companies and banks, insurers, and investors, about those risks, which in turn will lead to smarter, more efficient allocation of capital and greater resiliency in the face of climate change."
Last year, the G-20 Financial Stability Board (FSB) Task Force on Climate-related Financial Disclosures (TCFD) published their final report, which highlights the physical, transition and liability risks presented by climate change. This report contained climate risk disclosure recommendations for all economic sectors and also supplemental guidance for some sectors, including the insurance sector.
The G-20 FSB Task Force recommended voluntary disclosures and that preparers of climate-related financial disclosures provide such disclosures in public financial filings. Further, they noted that financial-sector organizations should consider using scenario analysis to evaluate the potential impact of climate-related scenarios on individual assets or investments, investments or assets in a particular sector or region, or underwriting activities.
Earlier this month, Commissioner Jones released a new report, Trial by Fire: Managing Climate Risks Facing Insurers in the Golden State, which examines the challenges and opportunities associated with climate risk, climate change, and insurance. The report further shows how climate change is a contributor to wildfire losses in California and discusses Commissioner Jones' initiatives to focus insurers' attention on climate risk and the role of insurers in addressing the three types of climate risks: physical, transition and liability risks.
"Analyzing and disclosing climate risks is smart business, given the increasing frequency and devastation of California's climate-related disasters," Jones added. "I urge companies to review and voluntarily adopt the recommendations of the Task Force on Climate-related Financial Disclosures. The climate risk scenario analysis that we have performed on insurer portfolios and are providing to insurers illustrates the value of these recommendations."
As a national leader on climate change and climate risk, and as the regulator of the largest insurance market in the nation, Commissioner Jones has led a multistate effort since 2011 to require insurers to respond to the Climate Risk Disclosure Survey adopted by the National Association of Insurance Commissioners (NAIC) in 2009.
In early 2016, Jones launched his Climate Risk Carbon Initiative because of the potential for investments in coal, oil, gas and utilities relying substantially on burning carbon, to become "stranded assets" on the books of insurers with little or no value as governments, private companies and markets, in an effort to address climate change and in response to market forces, may slowly or dramatically reduce the demand for carbon-based fuels causing the value of these assets to drop.
In May, Commissioner Jones became the first financial regulator in the U.S. to conduct a climate-related financial risk stress test and analysis of insurance companies' investment portfolios. The Department engaged 2° Investing Initiative, an established partner of European financial regulators, to conduct this analysis for insurers in California's insurance market with over $100 million in annual premiums. It is arguably the most comprehensive climate-related financial stress test analysis ever conducted for the insurance sector. The results of the scenario analysis are consistent with Commissioner Jones' Climate Risk Carbon Initiative determination that thermal coal as an investment faces climate-related financial risks, despite any short-term fluctuations in market price and policy signals.
The California Department of Insurance, established in 1868, is the largest consumer protection agency in California. Insurers collect $310 billion in premiums annually in California. Since 2011 the California Department of Insurance received more than 1,000,000 calls from consumers and helped recover over $469 million in claims and premiums. Please visit the Department of Insurance website at www.insurance.ca.gov. Non-media inquiries should be directed to the Consumer Hotline at 800.927.4357. Telecommunications Devices for the Deaf (TDD), please dial 800.482.4833.