• The EU's omnibus proposal will render sustainability reporting dysfunctional for European insurance companies.
• Investors, regulators, and other stakeholders would have less insight into how insurance firms manage their climate-related financial risks.
• Critics warn it would dampen years of progress made in reducing the impacts of climate change.

A report by ShareAction says the European Union (EU) is mulling over its sustainable omnibus proposal, which might exclude many insurance companies from the corporate sustainability reporting directive (CSRD).

According to the report, up to 85% of insurers in Europe might soon be excluded from the CSRD, meaning they won’t need to report on their sustainability efforts. The downside: this will limit data on how these companies manage their climate-related financial risks.

Analysing in detail, it is understood that the exemptions in the proposal would depend on company size, specifically on thresholds like the number of employees and annual turnover. For example, if the threshold is set at 1,000 employees, 51% of insurance companies will be excluded from reporting their sustainability efforts. If it increases, say €450 million in turnover, 67% would no longer need to report.

READ MORE: EU to Expressly Set Out Sustainability Reporting Rules by October

And if the employee threshold is raised to 5,000, as proposed by France’s finance minister, up to 85% will be exempted if turnover limits are also increased.

Critics have not taken this lightly; they say that removing a large number of insurance businesses from the CSRD purview could weaken transparency and accountability. As a result, stakeholders—including investors, regulators, and the wider public—will have less or no insight into how these firms are managing climate risks, which could make financial markets more unstable and less prepared to handle climate challenges.

"This would lead to a steep drop in climate progress made over the years," says ShareAction.

The European Insurance and Occupational Pensions Authority (EIOPA), the EU's insurance regulator, is approaching this with caution and seriousness. It supports simplifying regulations, calls for a consistent and reliable framework across the EU, and says that access to trustworthy sustainability data is paramount in today's evolving regulatory environment.

ALSO READ: CSRD Reports: Finance Sector Outshines Others in Sustainability Impact

Vincent Vandeloise, senior researcher at Finance Watch, said: "The omnibus directive is unprecedented. It’s an extremely, extremely unusual process. Normally, omnibus directives have happened with rules that were many years old… This omnibus directive is addressing [rules] before they’ve been implemented, so that’s already exceptional."

For a detailed view of the findings, download the report "Insurance in Transition: Decoding the Omnibus Agenda’s Ripple Effect" here.

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Source: Green Central Banking