California Insurance supervisor introduces 2D scenario analysis, in collaboration with 2Dii

California Insurance Commissioner Dave Jones announced yesterday the results of the climate scenario analysis conducted on the 672 insurance companies operating in California (press release). California is the largest insurance market in the US and the 4th largest globally.

Extracts of the aggregated results for the sector have been published on the website of the Department of Insurance. Detailed individual insurer reports (about 30 pages) will be made available to all insurance companies and sent for response to the top 100 insurance companies (by size of their investment portfolio) operating in California (80% of AuM analyzed).

All insurance companies will therefore be equipped with the result of the 2D scenario analysis for their stock and corporate bonds portfolios, benchmarked against peers, thus allowing them to apply the recommendations of the Financial Stability Board’s task force on climate-related financial risks (FSB TCFD), at no cost.

The analysis is based on the assessment framework developed by 2Dii, covering stocks and corporate bonds from energy-related sectors (oil & gas, coal mining, power, transport, heavy industries). Using forward-looking data from business intelligence, it compares the deployment of various low and high carbon technologies by the companies with the 2D, 4D and 6D roadmaps of the IEA.

California is the second jurisdiction to implement such a scheme, after the voluntary climate compatibility tests conducted in Switzerland in 2017. However, in Switzerland the participation was voluntary for insurers and pension funds and the program has been initiated by the Ministries of International Finance and the Environment, in collaboration with industry associations.

It is the first time a financial supervisor implement such a scheme, and the initiative takes place in a very specific context. With his Climate Risk Carbon Initiative, launched in early 2016, Commissioner Dave Jones took one of the most ambitious climate action among financial supervisors to date, requesting all insurers to publicly disclose their fossil-fuel related holdings and recommending them to divest from thermal coal. As a response, 12 states attorneys general and one governor (all Republicans) have threaten to sue the US Commissioner.

The Commissioner’s initiative is likely to be followed by other major supervisors, who are currently performing the same scenario analysis. Stay tuned…

Yours truly,

The 2° Investing Initiative team