Bermuda leads in tackling climate change
Bermuda’s proactive approach to climate change and environmental, social and governance (ESG) initiatives serves as a model for other offshore jurisdictions to follow, demonstrating its dedication to addressing these global challenges head on.
Climate change is an urgent global issue that threatens the stability and sustainability of insurance operations worldwide.
It affects not only underwriting activities but also operations and investments, ultimately impacting insurers’ ability to satisfy policyholder obligations.
To address this challenge, re/insurers in Bermuda are leading the way in promoting ESG factors within the industry.
Over the past 20 years, Bermuda’s re/insurers have paid out more than half a trillion dollars in claims arising from natural and man-made disasters, according to the Association of Bermuda Insurers and Reinsurers.
From an environmental standpoint, Bermuda re/insurers are at the forefront of climate science, developing models to predict and manage the impact of global disasters.
The island is committed to addressing climate change through reducing its carbon footprint, protecting ecosystems, increasing adaptability and resilience, and focusing on climate risk finance.
Many companies on the island have already implemented environmental policies, such as recycling and carbon offset programmes, and pledged to reduce carbon emissions by 2050.
Last month, the Bermuda Monetary Authority (BMA) issued a guidance note on managing climate change risks for commercial insurers, emphasising the need for re/insurers to assess the impact of climate risks on their operations and implement suitable processes and controls.
This guidance reflects Bermuda’s commitment to tackling climate change and advancing ESG initiatives within the insurance industry.
The insurance industry has done well with providing insurance protection and coverage for catastrophic events and works closely with the Bermuda Institute of Ocean Sciences to seek solutions on climate change.
Bermuda’s re/insurance sector is a recognised leader in catastrophe underwriting, employing a scientific approach to assess and manage risks associated with natural and man-made disasters.
The Regulatory Authority, the agency responsible for the electricity and telecommunications sector, released the Integrated Resource Plan, which sets out the objective of achieving an 85 per cent reduction in fossil fuel and a contribution of 85 per cent renewable resources by 2035. To this end, many companies have invested in solar power.
However, a PwC survey of investors revealed that 80 per cent believe that green washing — the overstating by companies of their green claims — is prevalent in corporate reporting.
It is therefore crucial for a company’s board to ensure these initiatives are actually implemented and make a difference.
Socially, Bermudian-based investment/fund managers have adopted ESG-oriented investment processes, leading to strong investment performance.
The island is also focused on creating positive social impacts through scholarships, community outreach and educational initiatives.
Companies are increasingly prioritising diversity, equity and inclusion in the workplace, with the Bermuda Business Development Agency reporting that 76 per cent of re/insurers and ILS funds have implemented DEI policies.
From a governance perspective, Bermuda is a sophisticated, innovative and well-regulated insurance jurisdiction. The BMA is committed to providing open, transparent regulatory frameworks that align with international best practices and is often praised for its collaborative approach to the industry and regulation.
As the growing sophistication of insurance companies leads to increasing levels of regulatory scrutiny, the need for more robust governance and a wider range of expertise on the board grows, including the use of independent non-executive directors, who provide independent oversight and constructive challenge to executive directors and also help to ensure all corporate governance and compliance requirements are met.
Furthermore, the issuance of catastrophe bonds and related insurance-linked securities, identified as “ESG compliant” from environmental and social perspectives, has become a significant part of Bermuda’s insurance landscape.
In these changing times, ESG is no longer an optional project for companies in Bermuda; it is an essential aspect of their operations.
But to successfully embed ESG, companies must align their efforts and publicly share their plans.
In addition, regulatory and industry bodies, including the BMA, play an increasingly critical role in shaping and enforcing ESG initiatives.
First Published in The Royal Gazette, Legally Speaking column, April 2023
