On November 15, 2021, the New York State Department of Financial Services (“DFS”) issued detailed final guidance (the “Final Guidance”) addressing how New York domestic insurers should analyze and manage the financial risks of climate change.[1] The Final Guidance builds on the DFS’s proposed climate guidance released in March 2021.[2]

The Final Guidance reflects relatively limited changes from the proposed guidance.  The changes include additional guidance on the time horizon insurers should consider when integrating climate risks into business decisions; how insurers should manage uncertainty related to climate change; and how the guidance applies to insurers that are part of groups. The DFS notes that it expects insurers to implement its guidance relating to board governance and to have specific plans in place to implement the guidance relating to organizational structure by August 15, 2022. The DFS plans to issue further guidance on the timing for implementation of more complex areas that will take insurers longer to implement, such as those relating to risk appetite, analysis of the impact of climate risks on existing risk factors, reflection of climate risks in the Own Risk and Solvency Assessment (“ORSA”), scenario analysis and public disclosure, but the DFS notes that it encourages insurers to begin working on these now.

The Final Guidance comes as U.S. financial regulators and policy makers, including the U.S. Department of Treasury, the U.S. Securities and Exchange Commission (“SEC”) and the Federal Reserve Bank, are focused on the potential systemic risk that climate change poses to the financial sector.[3]

Insurance and other prudential regulators outside of the U.S. are also addressing climate-related risks, and the DFS notes that the Final Guidance is modeled on publications and guidance from international regulators and networks, including the Bank of England Prudential Regulation Authority, the International Association of Insurance Supervisors (“IAIS”), the European Insurance and Occupational Pensions Authority (“EIOPA”), the European Central Bank and the Network for Greening the Financial System.[4]

An overview of recent actions by regulators and lawmakers in the U.S., EU and UK related to climate change and other environmental, social and governance topics is provided in the Firm’s ESG update newsletter, available here.