So far most of the market approached the ESG risk management from a scenario-analysis perspective, limited to climate change considerations.

If this is in line with some of the regulatory expectations, scenarios – because of lack of available data – can only capture a small portion of all the Environmental and Social risk an insurance entity might be exposed to. Furthermore, it fails in picturing all potential interconnections among the different type of environmental and social risks and the related implications on the company’s financials.

EIOPA itself, in its staff paper on nature-related risks, starts to switch the focus on more comprehensive although more qualitative approaches, that would enable risk managers to get the full picture of their exposure to ESG risks, as a preliminary exercise to the scenario analysis, that could therefore be focused on the most critical variables for the company.

This approach allows the Risk Management to move toward a business steering role, as it also allows to spot opportunities and possible mitigations. According to the granularity used for the assessment, the analysis performed could also help in validating the company’s materiality assessment.