The consideration of risk is endemic to insurance companies’ business models, but climate-related financial risk is a different animal (albeit with familiar characteristics).
Even for those astute practitioners with years of financial institution experience, the pace at which climate-related financial risk has been adopted as a material risk for the insurance industry has been a surprise. Indeed, five years ago, very few insurance industry observers would have guessed that a coalition of institutional investors and regulators could potentially mandate climate-related financial risk assessment in the early 2020s.
Since issuance of Task Force on Climate-Related Financial Disclosures (TCFD) recommendations in June 2017, the situation has evolved rapidly. Investor support for climate risk disclosure has grown immensely, culminating in a much-quoted 2020 letter to CEOs1 from BlackRock CEO Larry Fink (on which Fink doubled down in his 2021 letter to CEOs ),2 explicitly identifying climate risk as an investment risk. Since the release of that letter, BlackRock and other large institutional investors have taken more confrontational activist approaches to managing their portfolios for these risks. This is reflected in twice as many shareholder votes on climate-related proposals in 2021 as compared to 2020, and a 267% increase in respective votes passed from 2020 to 2021.