Climate and sustainability reporting: Ushering in a new era of corporate transparency for insurers

ESG and climate reporting was once viewed as a voluntary, value-driven exercise – more a matter of reputation than regulation. But with emerging frameworks like IFRS S1 and S2, sustainability disclosures are fast becoming a core requirement, embedding climate risk into the heart of financial reporting for insurers.

These frameworks will have significant implications not only on reporting requirements but also modelling practices and strategic planning. Companies will need to invest time and money into adhering to these standards, with those moving proactively standing to gain a valuable competitive advantage.

These reforms are a response to growing global demand for transparency on environmental, social, and governance (ESG) issues. The International Financial Reporting Standards (IFRS) Foundation has launched a bold initiative to reshape corporate reporting. At the heart of this transformation is the creation of the International Sustainability Standards Board (ISSB), which aims to standardize sustainability disclosures and bring clarity to the chaotic landscape of non-financial reporting.

This article provides an overview of the evolving ESG regulatory expectations, and what the implications are for insurers.

The ISSB and Its mandate

The ISSB aims to establish a global framework for sustainability disclosures, aligned with IFRS’s financial reporting structure. Its goal is to equip investors and markets with high-quality, decision-useful information on sustainability-related risks and opportunities that could affect a company’s value.

In June 2023, the ISSB issued its inaugural set of standards:

• IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information
• IFRS S2: Climate-related Disclosures

These build on the Task Force on Climate-related Financial Disclosures (TCFD) and integrate insights from Sustainability Accounting Standards Board (SASB) and Climate Disclosure Standards Board (CDSB) frameworks—uniting fragmented reporting under one roof.

IFRS S1: General Sustainability Disclosure Requirements

IFRS S1 outlines core principles for disclosing sustainability-related risks and opportunities. Key requirements include:

• Materiality: Entities must disclose sustainability-related information that is material to investors’ decision-making.
• Governance, strategy, risk management, metrics, and targets: The standard requires structured reporting on how sustainability risks and opportunities are governed, strategically managed, and monitored.
• Connectivity with financial reporting: Companies must explain how sustainability risks and opportunities affect financial performance, supporting integration with financial statements.

IFRS S2: Climate-related Disclosures

IFRS S2 focuses specifically on climate-related issues, including:

• Greenhouse gas (GHG) emissions: Entities must disclose Scope 1, 2, and – where applicable – Scope 3 emissions.
• Climate risk assessments: Companies must describe climate-related physical and transition risks, including their impact on strategy and financial planning.
• Scenario analysis: Use of climate scenarios to assess potential impacts under different climate pathways.
• Industry-specific metrics: Leveraging SASB standards for sector-specific disclosure relevance.

Implementation and global adoption

The IFRS Sustainability Standards are designed to be globally applicable and compatible with jurisdiction-specific frameworks like the European Sustainability Reporting Standards (ESRS) and the U.S. SEC’s climate disclosure rules. Though adoption of IFRS S1 and S2 is currently voluntary, many jurisdictions are progressing toward mandatory implementation.

For example:

• United Kingdom: Considering alignment with ISSB standards as part of its green finance strategy.
• Canada and Australia: Exploring phased adoption approaches with input from national regulatory bodies.
• Global South and Emerging Markets: ISSB is working to support capacity building to aid adoption in developing economies.

Impacts for insurers

The IFRS climate reporting requirements—particularly under IFRS S2: Climate-related Disclosures—will significantly impact insurers, not only in terms of reporting obligations but also with regards to risk modelling, strategic planning, and stakeholder communication.

Impact on insurance risk models:

Insurers will need to incorporate climate scenarios (e.g. 1.5°C, 2°C, 3°C warming pathways) into their models to assess how physical and transition risks could affect their liability and investment portfolios.

• Physical risks: More frequent and severe extreme weather events (e.g., floods, wildfires, hurricanes) directly affect underwriting assumptions for property, casualty, agriculture, and health insurance.
• Transition risks: Policy, legal, technology, and market changes (e.g. carbon pricing, energy shifts) influence asset valuations and liability profiles.

Actuarial and capital models must be updated to integrate climate-adjusted assumptions.

Impact on Investment Portfolios:

As major institutional investors, insurers manage vast investment portfolios. IFRS climate disclosures will promote:

• Greater transparency into climate risk exposure across equity, debt, and real asset holdings.
• Enhanced ESG integration into asset selection and portfolio management.
• Stress testing of investment portfolios under climate scenarios.

Investment strategies may shift away from high-emission or high-risk sectors (e.g. coal, oil & gas) towards more sustainable assets.

Product innovation and underwriting:

Climate disclosures could also lead to:

• Development of new insurance products (e.g. climate resilience coverage, parametric insurance)
• Reassessment of insurability in high-risk geographies or sectors
• Increased use of sustainability-linked pricing models. This is where the insurer offers some type of discount or financial incentive if the client reduces their emissions or demonstrates effective climate risk management.

This could affect both risk appetite and pricing strategy, especially in areas like coastal property or agriculture.

Challenges and considerations

Despite the momentum in which these standards are being introduced, several challenges remain:

• Data availability and quality: Many companies, especially SMEs, struggle with the data required for Scope 3 emissions and scenario analysis.
• Integration with financial reporting: Aligning sustainability and financial disclosures presents complex challenges.
• Assurance and audit: As sustainability disclosures grow in importance, independent assurance is becoming essential.

In summary…

The IFRS sustainability reporting standards mark a significant leap forward in embedding climate and ESG considerations into the core of corporate disclosure. A unified IFRS framework enhances global comparability, impedes greenwashing, and supports better investor decision-making. As implementation progresses, companies must begin investing in governance, systems, and data infrastructure to meet the demands of this new reporting era.

The disclosures timeline and expected future milestones are outlined below:

• 2023: IFRS S1 and S2 are published.
• 2024: Effective for voluntary adoption; early alignment in some markets.
• 2025 – 2026: Expected mandatory adoption begins in the UK, Singapore, Australia (Phase 1).
• 2026 – 2027: Broader global rollout; mandatory compliance for many large and listed companies.
• 2027+: Expand to SMEs, increased assurance requirements, deeper Scope 3 integration.

How 4most can help

Get in touch if you are interested in learning how 4most can help your organisation understand and react to the evolving climate and ESG regulatory landscape – info@4-most.co.uk.