This is part 2 of a series of educational posts from the IFoA’s Climate Change Disclosures Working Party about climate reporting topics. Here the working party focuses on the USA: current practices and a brief overview of things to come.
The United States is one of the largest polluters of carbon dioxide – accounting for c.14% of global emissions in 2019.
However, it has taken strides to address its global impact on the climate.
1. On President Biden’s first day in office, the US rejoined the Paris Agreement (February 2021).
2. Also, the US is a signatory to the UNFCCC and is committed to net zero by 2050.
3. Recently, the Inflation Reduction Act (IRA) was signed in August 2022 with the aim to:
Despite positive changes, the US has increased oil and liquid natural gas production to compensate for the reduced supply due to the Russia-Ukraine war.
In general (that is, beyond climate-related issues), legislation in the US follows the following pattern: Federal- / State- / City-level, for example with California recently publishing its own climate action plan.
On 21 March 2022, the US Securities and Exchange Commission proposed a requirement for companies to discuss climate-related information, including standardising the content of such disclosures whilst ensuring that the information disclosed is comparable and transparent. The proposal outlined that the disclosures would be annual and would impact both SEC-registered domestic and foreign companies.
The disclosure content would include:
Current timelines suggest disclosure requirements will be phased in from the financial year 2023, starting with the largest companies.
The National Association of Insurance Commissioners (NAIC) in the US was founded in 1871 and is an organisation governed by insurance regulators from all 50 states (in addition to territories) used to set standards for US insurers. (See: NAIC Climate Risk Disclosure Survey - California Department of Insurance)
In 2010, NAIC adopted the Insurer Climate Risk Disclosure Survey, which is a survey originally covering 8 questions surrounding climate risks such as impact of climate risks to an insurer and how the insurer is mitigating such risks. In 2022, the survey was amended to align with the TCFD framework covering the 4 major pillars of TCFD.
All insurers who write an annual premium of USD 100m of more are required to complete this survey on an annual basis. As of 2021, 15 states / territories participate with more than 1,500 insurers responding. (See: NAIC Climate Risk Disclosure Survey Results - California Department of Insurance.)
In 2021, the New York Department of Financial Services issued guidance requiring that all insurers should publicly disclose how climate risks are integrated into their corporate governance, risk management, and business strategies. (See: Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change - Department of Financial Services, NYC)
Currently, we are awaiting finalisation of SEC proposed regulations mentioned above, which we expect to be later in 2023.
Below is a list of websites which we hope that you find useful.
Inflation Reduction Act Guidebook
Getting ready for the SEC climate disclosure rule - S&P Global (spglobal.com)
Enhancement and Standardization of Climate-Related Disclosures - US SEC (sec.gov)
What are your thoughts on the points raised in this article?
We would love to hear your views in the comments on the IFoA's Sustainability Finance Community LinkedIn page.
To find out more, visit: Sustainability: research working parties
The views expressed in this post are those of the individual authors, and not necessarily those of the Institute and Faculty of Actuaries or those of their employers. Information within this post is correct as at the date of writing (i.e. end of July 2023). Hence, there may be subsequent updates which are not reflected. Any reader should still reference the underlying legislation and standard, and should there be any conflict, the underlying information in the relevant standard or legislation supersedes any information presented in this post.