In order to transition to a carbon-neutral economy, more policymaker action is needed to stimulate the supply of sustainable assets for investment, according to Insurance Europe, the European insurance and reinsurance federation.
Analysts at Insurance Europe claimed that re/insurers are ready to invest in sustainable assets, but said their willingness and capacity has not been matched by available assets.
Just to meet its 2030 climate and energy targets, Europe needs to close an annual investment gap of €260bn, according to the European Commission.
Yet there is currently a lack of sustainable assets in which to invest, not least because Europe is still highly dependent on fossil fuels, as opposed to renewable sources of energy.
In May 2019 for example, at a sovereign green bond auction in the Netherlands investors requested over €21bn, but only €6bn was allocated. Similarly, the 2019 green hybrid bonds issue of one of the largest European energy groups was six times oversubscribed.
In response, Insurance Europe believes that policymakers need to create a simple and clear sustainability taxonomy for investments to provide the foundation for harmonising standards and labelling schemes for green financial products.
This taxonomy would need to be simple and flexible enough to accommodate different investor strategies while still supporting the transition to a sustainable economy.
The issues that exist with the availability and quality of data also need to be addressed, analysts added.
Further suggestions included the removal of regulatory disincentives to long-term investment, which can also be viewed as barriers to sustainable investment.
Insurance Europe argued that the 2020 review of the Solvency II insurance regulatory framework could be the opportunity to enact changes that better reflect the long-term nature of insurance.
Potential changes include the reduction of the excessive valuation of long-term liabilities, the reduction of artificial volatility in the balance sheet, and recognition of how insurers’ combination of assets and liabilities may reduce their exposure to short-term investment risks.