What early AASB S2 insurance reports are signalling: maturity, minimum disclosure, and the climate cost gap

Governance disclosures displayed the most consistency across entities in the first wave of reports. Almost all insurers explicitly embedded climate oversight in their board or sub-committee charters and responsibilities.  Board attention on climate-related matters is frequent but varies across reporters. 33% of entities describe climate-related matters being reviewed quarterly or more often, while 25% describe biannual review, 25% describe ad-hoc review, and the remaining either describe annual reviews or do not disclose frequency of the Board’s review of climate matters. In practice, cadence shapes behaviour: Insurers should consider setting the frequency of governance reviews of climate-related information via a risk-based approach with flexibility based on unexpected changes in underlying factors, such as regulation, data or climate risk exposure factors.

Climate-related knowledge and capability are clearly disclosed at the board level and are largely self-identified. 75% of entities reference board climate training and about half reference climate competencies in a skills matrix (42%). As headline percentages, these read as comprehensive, but the disclosures do not necessarily provide the reader with an understanding of the skill level or area of expertise these types of activity would signal, or how the Board determines whether the appropriate skills and competencies are available or will be developed.

Almost all insurers describe shared executive accountability for the management of climate risks and disclosures, with risk leaders embedding climate into risk processes and finance leaders overseeing the preparation of disclosures.

Just under half of the reports reviewed (42%) mention climate-related remuneration but only one report discloses specific climate targets used to assess remuneration outcomes. Whilst AASB S2 does not require climate-linked remuneration, remuneration with KPIs linked to climate-related incentives is generally viewed as a sign of its integration within the entity’s core strategy.

Climate-related risks were identified and reported by all reports reviewed, noting that disclosures of these were usually aggregated. 67% of reports aggregate physical risks into one to three broader risk categories, and 92% of reports aggregate transition risks in the same way. The identification of opportunities was limited, with entities reporting between zero and two climate-related opportunities.

AASB S2 requires entities to decide how to aggregate or disaggregate information in their climate-related financial disclosures to ensure understandability and not obscuring material information with dissimilar characteristics. While the high-level aggregated risk categories reported by insurers are often similar, the underlying areas of emphasis can differ according to the nature of the entities’ insurance or reinsurance products. Two key risks appear consistently across the cohort: most notably, affordability challenges and reduced demand for insurance products, and negative impacts on investment returns (mainly due to the costs of the transition to a low emissions economy, and in some cases, also exposure to physical risk). Both key risk areas were identified across general insurers, reinsurers and health and life insurers, suggesting that insurers are consistently recognising climate risk both in terms of their investment strategy, and in how climate will drive affordability related pricing and demand trade-offs.

Beyond those common themes, patterns become more sub-sector specific. The exposure to physical climate risks varied:

• General insurers consistently emphasised underwriting exposure to flooding, bushfires and other extreme weather events affecting the policyholders’ plant, property and equipment.
• Health and life insurers more frequently referenced morbidity and mortality impacts arising from changing disease patterns, public health system disruption and in some cases mental health impacts associated with climate change.
• Reinsurers identified a broader exposure to morbidity and mortality risks related to physical risks, alongside operational reputation, regulation and litigation risks.

Opportunities disclosed were limited and concentrated, with the strongest signal in investment-related opportunities linked to transition to a low-carbon economy, particularly among reinsurers. Underwriting opportunities, such as new products or resilience-focused offerings, were less consistently reported.

Although some insurers disclosed financial impacts of climate risk in the current year linked to weather-related claims, none of the insurers disclosed that these result in a material change to their financial statements given they are already allowed for in their insurance contract liabilities. This does not necessarily indicate an absence of climate-related effects. Rather, it reflects current judgements that these impacts are not yet materially changing the measurement of financial statement amounts at the reporting entity level (e.g., weather-related claims falling within the allowance reflected in insurance contract liabilities).

Forward-looking disclosures on anticipated financial effects were challenging to compare. 75% of entities qualitatively disclosed anticipated financial effects, while only 25% provided some quantification for selected climate-related risks and opportunities. Measurement uncertainty and data limitations were frequently disclosed as the rationale for minimal quantification. No insurers indicated that climate-related risks and opportunities were expected to result in material change to their financial position, financial performance and cash flows over the short, medium and long term. Some reporters were clear that the financial effects were disclosed on a residual risk basis, while other reporters were not clear about whether this was on an inherent or residual risk basis. The main business responses noted for addressing climate risks included risk-based pricing, pricing flexibility, appropriate climate/natural hazard modelling in place, speed in repricing insurance risk and investment rebalancing. Capital buffers and explicit reinsurance structures were also mentioned in some disclosures.

Results of the resilience assessment showed that almost all insurers assessed that their business model was resilient against different climate scenarios. The level of detail of the disclosure of the resiliency conclusion was mixed, with 67% stating a resilience conclusion for each scenario assessed, 25% including higher-level conclusion on resilience over all scenarios, and 8% not clearly stating a resilience conclusion.

Disclosures on climate metrics were generally ring-fenced to required disclosure areas. Percentage and amount of business activities or assets vulnerable to climate-related risks were only disclosed quantitatively by 17% (2) of insurers, and a qualitative description was disclosed by half of the insurers analysed. The other 33% of insurers did not provide specific disclosures against this AASB S2 requirement.  

Scope 1 and 2 emissions are clearly described in all reports, with 33% of insurers disclosing Scope 1 emissions as zero, near-zero, or immaterial. All reports applied the transitional relief not to report Scope 3 emissions in accordance with AASB S2 in their first year, but with some electing to voluntarily report some categories of Scope 3 emissions. Although financed emissions are likely to be a significant Scope 3 emissions category for many insurers, all early reporters opted to use the transitional relief for Scope 3 emissions reporting not to report these emissions in their first year. Emissions from underwriting activities could also be material; however, recent AASB S2 amendments clarified that these specific insurance-associated emissions are not required to be disclosed as Category 15 emissions.

Climate-related targets were present in some disclosures, all relating to GHG emissions and energy use. Half of the reporters disclosed at least one GHG-related target⁵, with approximately 30% of reporters having a variation of a net-zero target. Two reporters explicitly reference Science-based Targets Initiative (SBTi) validation, and three referenced targets relating to reducing emissions from their underwriting activities or investment portfolios.

The first wave of AASB S2 reports by insurers indicates that climate-related risks have been embedded into governance and risk management frameworks across the sector, with most insurers identifying a common set of climate-related risks. However, there is limited consistency in how insurers disclose exposure, vulnerability, and financial impacts, which constrains the ability to compare these risks. Current climate-related targets are predominantly focused on GHG emissions. As climate risk metrics mature and become more robust and decision-useful, they may provide a foundation for the development of additional risk-based KPIs, supporting more comprehensive performance management across the business.

Looking ahead, these early disclosures establish a foundation for the next cycle of climate-related reporting. This is likely to involve an emphasis on deepening analysis and strengthening the linkage between climate risks, metrics, and financial outcomes, particularly for general insurers. Continued progress will require further development in the modelling of climate-related risks and opportunities, alongside a clearer understanding of how these risks may evolve over time.

As methodologies develop, there is an opportunity to refine quantification approaches, so they better reflect the nature, timing, and severity of hazards. This includes improving transparency around the uncertainty and limitations of models and data, ensuring that reported metrics are interpreted appropriately.

The ongoing development of financed emissions measurement will also play an important role in enhancing visibility of transition risks and portfolio alignment. As insurers strengthen these capabilities, they will be better positioned to assess how investment strategies interact with decarbonisation pathways and how climate considerations may influence future financial performance.

In this first wave of reporting, most insurers assessed their business models as resilient to current and anticipated climate-related effects. As highlighted in the national climate change risk assessment, the systemic nature of climate risk means that impacts will be unevenly distributed across the economy. This may amplify challenges such as product affordability over time. Regular reassessment of resilience will therefore be critical to ensure that insurers remain prepared for emerging risks and evolving market conditions.

As these systemic impacts of climate change intensify and become more unevenly distributed across the economy, it is acknowledged across the sector that a more coordinated, economy-wide approach will be needed for physical climate-related risks, from insurers, businesses, banks and governments to strengthen resilience and support effective risk sharing over time.