Three insurance companies could be facing fines over their alleged failure to disclose climate risks in their annual reports, it has been revealed.
UK-based Admiral, Lancashire Holdings, and Phoenix Group Holdings have been reported to the country’s financial regulator, the Financial Conduct Authority (FCA) by environmental law group ClientEarth, it has emerged.
ClientEarth says it has sent detailed legal letters to the regulator about the three firms. In a release, the group described climate change as a principal risk or uncertainty affecting the companies, and said the firms are legally obliged to report them.
According to ClientEarth the three firms did not mention the risks posed by climate change in any of their annual reports. As a result, the FCA could fine or publicly censure the insurers as a result of the complaints, and the companies could be required to publish information which rectifies the omissions in their annual reports, the group said.
“Given the myriad climate change-related risks these companies are exposed to, we were surprised to find that they were not communicating this to investors,” ClientEarth insurance lawyer Stephanie Morton said.
“We think the law is quite clear on this and by omitting financially material climate risks from their annual reports, these companies are not giving the full picture. Without this information, how can investors make a fully-formed investment decision?”
The group described four main types of risk affecting insurance companies from climate change: physical risks from climate change; transition risks caused by changing consumer preferences, technological advances and new governmental policy; liability risks; and reputational risks.
It said the insurance sector is “particularly vulnerable” to these risks as they affect both sides of their balance sheets.
Referring to the FCA’s response to the Environmental Audit Committee’s Green Finance report this year, Morton said the UK regulator had “moved swiftly” in listing the proactive steps it is taking regarding climate change-related disclosures.
The FCA has said it will “highlight to issuers the need to make adequate disclosures regarding materially important information, including information that allows investors to understand how ESG matters affect the valuation of a listed company’s securities and how these matters are managed by the company.”
Morton added: “This is an opportunity for the FCA to send a strong market signal that climate disclosures are essential for enabling investors to assess climate-related financial risks, and we look forward to a speedy and robust response.”