Integration of Sustainability Risks and Factors in the delegated acts under Solvency II and IDD

As part of a broader European Commission initiative on sustainable development, a number of changes will be introduced to the Commission Delegated Regulation (EU) 2015/35 (“Solvency II Delegated Regulation”) and the Commission Delegated Regulations (EU) 2017/2358 and (EU) 2017/2359 (“IDD Delegated Regulations”) as of 2 August 2022.  These changes which were introduced by Commission Delegated Regulations (EU) 2021/1256 and (EU) 2021/1257 (“amending Delegated Regulations”) on 21 April 2021, will require insurers to integrate sustainability risks and factors in the areas of organisational requirements and product oversight and governance systems.

Solvency II Delegated Regulation

The recital to Commission Delegated Regulation (EU) 2021/1256 amending the Solvency II Delegated Regulation states that “sustainability factors should be taken into account by insurance and reinsurance undertakings as part of their duties towards policyholders. Insurance and reinsurance undertakings should therefore assess not only all relevant financial risks on an ongoing basis, but also all relevant sustainability risks … that, where they occur, could cause an actual or potential material negative impact on the value of an investment or a liability”.

Since the amending Delegated Regulation aims to ensure that the system of governance of insurance and reinsurance undertakings and the assessment of those undertakings’ overall solvency needs reflects sustainability risks, it identifies four key areas in which sustainability risk must be incorporated.

Risk Management

(Re)insurance undertakings are required to reflect sustainability risks in their risk management system, and to integrate sustainability risks in their policies on underwriting and reserving, investment and other risk management areas, where relevant. The tasks of the risk management function are extended to include the identification and assessment of sustainability risks.

Actuarial function

In the opinion to be expressed by the actuarial function on the underwriting policy, the actuarial function is to take into account sustainability risks in its assessment of the uncertainty associated with estimates made in the calculation of technical provisions.


The remuneration policy is to include information on its consistency with the integration of sustainability risks.

Prudent Person Principle

Sustainability risks are also to be taken into account in the implementation of the prudent person principle.  The prudent person principle laid down in Article 132 of Directive 2009/138/EC requires that (re)insurance undertakings only invest in assets the risks of which they can identify, measure, monitor, manage, control and report properly.  (Re)insurance undertakings should reflect in their investment process the sustainability preferences of their customers as taken into account in the product approval process.

IDD Delegated Regulations

Commission Delegated Regulation (EU) 2021/1257 amending the IDD Delegated Regulations integrates the sustainability factors, risks and preferences into the product oversight and governance requirements for insurance undertakings and insurance distributors and into the rules on conduct of business and investment advice for insurance-based investment products.

Product oversight and governance

With regards to the product oversight and governance requirements, the amending Delegated Regulation clarifies that sustainability factors and sustainability-related objectives should be taken into account in the product oversight and governance process for insurance products.  Insurance undertakings and insurance intermediaries which manufacture insurance products for sale to customers should duly consider sustainability-related objectives of customers during the product approval and product testing process and when identifying groups of customers for whose needs, characteristics and objectives the insurance product is compatible (target market assessment) for each insurance product. Additionally, sustainability-related objectives will need to be factored into the distribution arrangements.

Insurance-based investment products (IBIPs)

In terms of the product suitability, the amending Delegated Regulation integrates customers’ preferences in terms of sustainability in the suitability assessment of insurers and insurance intermediaries providing advice on IBIPs. The Explanatory Memorandum to the Delegated Regulation clarifies that sustainability factors should not take precedence over a customer’s personal investment objective, and that sustainability preferences are to be addressed within the suitability process only once the customer’s investment objective has been clearly identified.  The amending Delegated Regulation also integrates a customer’s sustainability preference into the suitability statement, which is now to include information as to whether the customer’s investment objectives are achieved by taking into account his or her sustainability preferences.

Other key amendments include the requirement of distributors of IBIPs, when identifying any conflicts of interest that may damage the interests of a customer, to include those types of conflicts of interest that arise from the integration of a customer’s sustainability preferences.

With a few months to go to the adoption of the amending Delegated Regulations, insurers and intermediaries should review their organisational and operational requirements, policies and procedures in order to align same with the new requirements.

Should you have any questions regarding the contents of this article and/or the integration of sustainability risks and factors in insurance, please do not hesitate to contact the author at or Ms. Tanya Causon at

This article was featured in the April 2022 issue of Ganado Advocates’ Insurance newsletter.