A Month of Climate Change Activity Ends with Publication of New York’s First-in-the-Country Climate Change Risk Regulatory Framework

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When we published our last climate change update earlier this month, it was probably a safe bet that the last few weeks of the month would continue to be active. That was an understatement. Before summarizing the New York Department of Financial Services (DFS) March 25 “Proposed Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change” (Proposed Guidance), we should consider developments in multiple jurisdictions that form the backdrop for the DFS’ action.

In Depth

Federal Developments

Department of Labor

On March 10, the Department of Labor announced that it would not be enforcing a Trump-era regulation that had sought to limit the ability of those managing retirement plan assets to select environmental, social and corporate governance (ESG) funds.

Securities and Exchange Commission

On March 15, the Securities and Exchange Commission (SEC) announced a consultation, with responses due on or about June 15, to consider 15 questions respecting climate change, ranging from:

  • Where and how climate change risk disclosures should be made to “provide more consistent, comparable and reliable” information for investors
  • What quantitative information or metrics should be reported
  • Whether the SEC should develop and publish minimum disclosure standards, possibly differing by industry
  • What climate change frameworks (g., Task Force on Climate-Related Financial Disclosures) might usefully be employed
  • Whether global standards are preferred
  • Whether governance standards around climate change risks ought to be developed, including possible links to management compensation, as part of wider required ESG disclosures and sustainability analysis.

Federal Reserve

The Fed now has two climate change committees. In February, it was announced that the New York Fed’s Kevin Stiroh would be seconded to Washington, DC, to work on climate change regulatory matters, heading up a Supervision Climate Committee. Last week we learned that in addition to the microprudential work that Mr. Stiroh will apparently handle, we will see a new macroprudential climate change committee—the Financial Stability Climate Committee—intended to address systemic threats posed by climate change.

US Senator Letters to Selected P+C Insurers

On March 24, four Democratic Senators, including Sen. Elizabeth Warren (D-MA), wrote to several major P+C insurers to remind them that climate change was front-of-mind and to pose three questions with responses due by mid-April:

  • Which climate scenarios have you considered?
  • Have you stress tested your exposure to fossil fuel assets?
  • How do your underwriting and investment policies regarding fossil fuel companies square with your broader commitment to sustainability?

State Developments


There may be other states considering whether to require insurers to participate in the annual multi-state climate disclosure survey effort led by California, New York and Washington State, but Connecticut’s Legislature is considering SB 1047. The bill would require Connecticut-licensed insurers to prepare and submit a climate disclosure survey beginning in 2022, by posting investment and underwriting responses to the insurance department website by April 1, 2022.

North Dakota

Along with a number of other states (e.g., Alaska, Indiana, Kentucky, Oklahoma, Pennsylvania, Texas and West Virginia) that are dependent on oil and gas and/or coal extraction for jobs and tax revenue (more than half of North Dakota’s tax revenues consist of taxes on oil production), North Dakota was considering “social investment” prohibition legislation this session. And last week Governor Doug Burgum signed SB 2291 into law. Among other things, this new law bars North Dakota state funds from investing in any “social investment” (defined as “the consideration of socially responsible criteria in the investment or commitment of public funds for the purpose of obtaining an effect other than a maximized return to the state”) unless the expected return in the social investment vehicle is “equivalent or superior” to that achievable in a comparable investment, with “similar time horizon and risk”).

In addition, per SB 2291, North Dakota’s Department of Commerce will now commence a study of “environmental social governance,” including “potential implications…[relating] to the boycott of energy or agriculture commodities by companies that intend to penalize, inflict economic harm on, or limit commercial relations.” The report is due by June 1, 2022.

Non-US Developments


In 2020, the Bermuda Monetary Authority (BMA) conducted a climate change survey (the 2020 Survey) with responses requested of larger re/insurers. Results were published in mid-March 2021. Per the BMA press release, the 2020 Survey showed general climate risk understanding but with uneven integration of climate risk analysis. P+C re/insurers are obviously well aware of physical risks; life re/insurers more active with respect to integrating climate change risk awareness into investment activities. The BMA believes awareness among boards and senior managements is increasing but that companies see challenges, including: (1) pressure on some lines of business; (2) overall uncertainty as to the transition to low carbon economies; and (3) inconsistencies among evolving methods/standards for risk assessment and disclosures.

The BMA’s 2021 Workplan will include: (1) sharing the results of the 2020 Survey; (2) using responses to the 2020 Survey to develop a qualitative assessment of the Bermuda market’s climate change status; (3) continuing development of a climate stress test to assess climate change exposure and vulnerability, including physical and transition risks; (4) integrating sustainability into the BMA’s regulatory framework and providing guidance to re/insurers on integrating ESG into risk management and Own Risk and Solvency Assessment (ORSA) processes; and (5) launching an ESG issues working group to lead these efforts.

During the balance of 2021, BMA will: (1) conduct exposure assessments and vulnerability analyses to set baselines for supervisory expectations for re/insurers’ impact assessments and to define future filing/disclosure requirements; (2) continue to engage with international counterparts; and (3) explore increased use of the island’s regulatory sandbox to explore products that might serve as climate change adaption tools.

DFS’ Proposed Guidance

One critical point to note at the outset: The Proposed Guidance would apply to domestic insurers only—i.e., to those insurers that are chartered in New York—and not to insurers, i.e., foreign insurers, chartered in other states but that happen to be licensed in New York as well. Earlier climate change guidance from the DFS had been addressed to both domestic and foreign insurers.

Why the limitation to domestic insurers? It avoids extraterritorial application of regulatory policies and procedures that New York believes to be appropriate but that other states may not necessarily agree with. But it will not be lost on regulators in other states, some of whom may regard this as yet another instance of New York regulators “jumping the gun”—we saw this a few years ago with cybersecurity as well. Interestingly, the DFS has scheduled a webinar briefing on the Proposed Guidance for April 8, the day before the National Association of Insurance Commissioners’ (NAIC) Climate Change and Resiliency Task Force meets.

Note also that previous climate change guidance from the DFS had been addressed to New York chartered banks. But not this latest guidance. Why this omission? Perhaps because the DFS is very well aware that every federal banking regulator in Washington, DC, has recently appointed a climate change czar (and as noted above the Federal Reserve now has two climate change committees—one handling macroprudential (systemic climate risk) and the other addressing microprudential climate change risks) and is in the process of developing climate change risk regulatory frameworks. Comments on the Proposed Guidance are due by June 23.

All this said, here are the DFS’ specific “supervisory expectations” with respect to climate change risk—with a general expectation that insurers should consider both current and future risks and plan to mitigate them in a manner that is proportionate to each insurer’s nature, scale and complexity:

  1. “Integrate the consideration of climate risks into its governance structure. The insurer’s board should understand and be responsible for managing climate risks, which should be reflected in the company’s risk appetite and organizational structure.”
  2. “When making strategic and business decisions, consider the current and forward-looking impact of climate-related factors on its business environment in the short-, medium- and long-term.”
  3. “Incorporate climate risks into the insurer’s existing financial risk management, including by embedding climate risks in its risk management framework and analyzing the impact of climate risks on existing risk factors. Climate risks should be considered in the company’s ORSA. “
  4. “Use scenario analysis to inform business strategies and risk assessment and identification. Scenarios should consider physical and transition risks, multiple carbon emissions and temperature pathways, and short-, medium- and long-time horizons.”
  5. “Disclose its climate risks and consider the TCFD and other initiatives when developing its disclosure approaches. DFS intends to monitor compliance with these expectations as part of its supervisory activities.”

The DFS is aware of course that regulators in the European Union and the United Kingdom are much more advanced in the development of their climate change risk regulatory frameworks. The DFS says it will continue to work with international counterparts to “ensure consistency” and “reduce the compliance burden.”

The DFS says it is aware that over time insurers’ approaches to managing climate change risk will “mature”—starting with qualitative assessments using simple models but progressing to more quantitative analyses using more advanced models, incorporating more factors or variables and extending over longer time horizons. As to physical risks, i.e., on the underwriting side, the maturation process will hinge in part on the development of better and better models by the usual vendors, as well as insurers’ internal models, perhaps augmented by public climate change models. On the transition risk side, i.e., investing, the proliferation of green standards makes comparability and consistency difficult to realize. Debate on this topic is widespread and intense. Stress testing and scenario analyses also seem to be at an early stage of development, and while the DFS is cognizant that some insurers may not be “ready to conduct a comprehensive and quantitative scenario analysis” nevertheless the exercise is valuable for all insurers.


We will report on the DFS’ April 8 webinar and the NAIC’s April 9 Climate Change and Resiliency Task Force meeting—among other climate change-related developments, e.g., the Financial Stability Oversight Council meets today and climate change is on the agenda of the open session—in our next publication.