The sustainability risks consider climate, environmental and social factors and take effect on August 1

The Superintendence of Private Insurance (SUSEP) published Circular 666 on Wednesday, June 28. This is responsible for showing the requirements of sustainability to be observed by insurance companies, open-ended supplementary pension entities, capitalization companies and local reinsurers. The risks of sustainability, according to the Circular, are the set of climate risks (divided into three categories: 1. Physical climate risks; 2. Climate risks of transition; 3. Climate risks of litigation), environmental (those that cause losses due to the degradation of the environment and the excessive use of natural resources) and social (generating losses due to the infringement of fundamental rights and guarantees or acts that are harmful to the common interest).

“The inclusion of climate risks of litigation is an interesting innovation by SUSEP and very welcome. It demonstrates that the regulator is attentive to the movement in the market and the filing of legal actions related to climate change, which is something that is happening all over the planet. Climate litigation has become one of the most important instruments to guarantee the integrity of the Paris Agreement and provides materiality to climate risks, enabling the actors from the financial market to recognize and value the potential financial impacts,” explains Gustavo Pinheiro, the coordinator of the Low Carbon Economy portfolio of iCS.

The circular introduces another important aspect: the obligation to assess and classify risks of sustainability by levels of materiality. These studies, incidentally, must take into consideration characteristics such as activities, operations, products, service providers, suppliers and clients, in addition to a minimum reassessment at least every 3 years.

Luciane Moessa, the founder and executive director of SIS (Sustainable Inclusive Solutions), which is an iCS grantee, worked directly in the preparation of the final document by suggesting improvements in what, according to her, was already something very positive. “The contribution that I consider the most important concerns the fact that, in the risk management system, they did not mention the need to classify the risks, which is fundamental when thinking about this management at the portfolio level. The insurers and pensions are significant investors. We were able to introduce the term “classify” into the final wording,” she says.

Another recommendation by the SIS that was accepted was the inclusion of the word restoration in the section that deals with positive environmental impacts. Beforehand, the text only mentioned preservation and repair, which should only take place when restoration is not possible.

The companies from the sector must implement criteria for the pricing and underwriting of risks that observe, for example, the history and commitment of the client in mitigating the associated risks of sustainability, apart from any other possible applicable restrictions or limits.

The announcement takes effect from August 1.

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