Identify board and management oversight on climate-related matters, and define clear roles, responsibilities, and charters.

Governance bodies will play a pivotal role in establishing top-down accountability mechanisms. Insurers should establish a robust plan that highlights key timelines, internal and external stakeholders, and interdependencies. Having a strong governance structure will facilitate effective decision-making and assist in balancing competing priorities.

As the management infrastructure takes shape, there is a high degree of emphasis on the board’s role and how the board is monitoring progress against goals and targets for climate-related issues. By taking time to charge a committee of the board with the responsibility of ESG early and making it responsible for promoting consensus, minimizing issues, and collaborating quickly without compromising completeness, leaders can reduce the time spent identifying gaps and determining a path forward.

Perform stakeholder engagement, including education on climate-related risks, data collection, and target setting.

Identifying key internal and external stakeholders is imperative to meeting climate change disclosure objectives. As defined by the Global Reporting Initiative (GRI), stakeholders are individuals or groups who have interests that are affected or could be affected by the organization’s activities. Stakeholder engagement is used to obtain stakeholders’ opinions and prioritize areas that could assist companies in establishing sustainability strategies.

Stakeholder groups to be represented in the assessment process are identified using the GRI stakeholder selection criteria: responsibility, influence, proximity, dependency, and representation. Common categories of stakeholders for insurers may include client leadership, actuaries, human resources, accounting and financial planning and analysis, risk management, and underwriting. External stakeholders may include investors, credit raters/ESG raters, regulators (e.g., SEC, New York Department of Financial Services), standards/frameworks, industry associations, employees, and customers.

Enhance data quality, timeliness, automation, and relevance by standardizing governance and controls to prepare for assurance-ready disclosure.

Finance teams will play a pivotal role in ensuring that existing financial reporting systems and processes are adapted to manage reporting requirements introduced by the SEC proposed ruling on climate change. Insurers may wish to:

• Define a reporting strategy.
• Increase the use of reporting tools and accelerators that can help them proactively manage the increased volume of disclosures and analysis that may be required to report results under the proposed ruling.
• Establish, document, and communicate internal and external climate-related data timelines, aligned with financial reporting.
• Review the current state of processes and controls around existing climate disclosure.
• Understand existing quantitative and qualitative data governance structures to identify gaps and meet near- and long-term reporting requirements.

Assess the strength of processes and controls over climate-related data, leveraging existing financial reporting controls.

Across the industry, insurance companies have varying levels of control maturity regarding ESG metrics. Companies should assess the readiness of the current control environment to understand any gaps related to reporting under the SEC proposed ruling on climate change:

• Identify potential risks that could have an impact on climate-related reporting objectives.
• Identify opportunities related to ESG that can strengthen overall company strategy.
• Determine relevant data sources, systems, and process owners.
• Evaluate the maturity of existing controls to enhance data accuracy and completeness.
• Define internal process controls and general IT controls to mitigate identified climate-related risks.
• Regularly assess design, implementation, and operating effectiveness of controls.

Understand disclosure requirements for climate targets, preparing for transparency on progress and transition plans.

According to the TCFD climate-related recommended disclosures, insurers should consider how the following information relates to strategy:

• Relevant short-, medium-, and long-term horizons and how they correspond to climate-related goals
• Specific climate-related issues potentially arising in each time horizon that could have a material impact to the users of the financial statements
• The process used to determine which risks and opportunities could have a material financial impact
• The impact on the insurer’s businesses, strategy, and financial planning across its products and services, supply chain and/or value chain, adaptation and mitigation activities, research and development investment, operations, acquisitions or divestments, and access to capital

Insurers should think through the changes needed to support their internal and external analyses under the SEC proposed ruling. These may include internal analysis packages for senior leadership, quarterly financial supplements, press releases, analyst packages, and other significant exhibits.

Identify physical and transition risks and opportunities (e.g., legal/policy, market, product, physical hazards) to the business.

Companies should identify, manage, and respond to latent and emerging climate-related risks and integrate climate risk and opportunity capabilities into existing risk and control frameworks.

By integrating climate-related risks and opportunities, insurers can:

• Drive innovative and brand-enhancing strategies, including strategic choices across the value chain.
• Enhance strategic communications to stakeholders to navigate changing expectations and demonstrate prioritization and management of climate-related risks and opportunities.
• Align insurers’ strategies with emerging expectations from customers and investors.
• Prioritize and measure opportunities for cost savings, risk mitigation, and reputation enhancement.
• Understand and manage risk and liability considerations related to climate-related performance.
• Broaden the integration of climate-related performance into the existing management control frameworks to support compliance around climate-related risk.

Prepare for accelerated reporting timeliness, and establish a plan to obtain and/or increase the level of assurance.

Improving the reliability of information may reduce information asymmetry for investors, leading to better-functioning markets and aiding in capital formation. Insurance companies are at various stages of ESG reporting. Some insurance companies voluntarily have sustainability reports, some have risk assessments, and others are just starting their ESG journeys. The SEC proposed rule calls for an enhanced level of effort and will be required for all public companies in the future. Now is the best time to contemplate the considerations of ESG and how the issues impact your insurance company.