The Digital Insurance Forum hosted a dynamic fireside chat featuring Karel Van Hulle, Professor Emeritus at Goethe University Frankfurt and Catholic University Leuven and ICIR Fellow, alongside Thea Utoft Høj Jensen, Director General of Insurance Europe. This engaging session discussed the impact of the Corporate Sustainability Due Diligence Directive (CSDDD) on the insurance sector. Moderated by Professor Van HulleMs. Utoft Høj Jensen shared valuable insights into the Directive’s goals, challenges, and its interplay with other sustainability frameworks.

Overview

The CSDDD, adopted in June 2024, mandates corporate action to identify, prevent, and mitigate adverse impacts on human rights and the environment, such as deforestation, pollution, and biodiversity loss. It supports the EU’s decarbonization goals and harmonizes obligations across member states. However, the Directive’s complexity and ambitious scope have raised concerns, prompting simplifications under the proposed Omnibus Packages introduced by the European Commission.

The forum explored to which extent the CSDDD is relevant to insurers, how it interacts with other sustainability frameworks, and the potential challenges of implementation. It also discussed insurers’ broader role in driving sustainability and bridging existing gaps, such as the natural catastrophe protection gap.

Key Points from the Forum

What is the Role of the CSDDD in Sustainability?

Thea Utoft Høj Jensen positioned the CSDDD as a cornerstone of the European Green Deal, complementing other instruments like the Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation (SFDR). Unlike the CSRD, which focuses on disclosure, the CSDDD emphasizes actionable sustainability commitments and aims to:

• Align corporate strategies with climate goals.

• Enforce environmental due diligence.

• Integrate sustainability into governance and risk management.

• Create a level playing field across EU member states through consistent obligations.

• Enhance transparency and accountability.

Ms. Utoft Høj Jensen noted that the Directive pushes companies to "walk the talk" by not only reporting on sustainability but ensuring their operations actively contribute to societal and environmental goals.

Relevance to the Insurance Industry

The CSDDD applies to large financial institutions, including insurers, with over 1,000 employees and €450 million in EU turnover. These companies are required to adopt climate transition plans aligned with the Paris Agreement and conduct due diligence within their tier-one supply chains. However, downstream obligations were excluded, reflecting the complexities of tracing beneficiaries in financial services.

While insurers are required to integrate sustainability into their risk management frameworks under Solvency II, Thea acknowledged overlaps between Solvency II and the CSDDD. This raises questions about redundancy and consistency across regulatory frameworks, particularly when multiple sustainability plans need to be developed under different directives.

Omnibus Simplifications and “Stop the Clock”

The European Commission’s Omnibus Simplification Packages were intended to address criticisms about the complexity of sustainability directives. Specifically, the "Stop the Clock" proposal delayed the transposition and application deadlines of the CSDDD to July 2028, giving companies and regulators more time to adjust.

Additional changes in Omnibus One include:

• Aligning mandatory transition plans with the CSRD for greater consistency.

• Limiting due diligence obligations to tier-one suppliers.

• Removing EU-wide civil liability provisions, deferring to national legal frameworks.

While these changes simplify compliance burdens, critics worry they may dilute the directive’s original ambition, opening doors to greenwashing and delaying substantive action.

Challenges and Concerns

The simplifications raised several practical and legal concerns about balancing ambition with industry feasibility:

• Complexity vs Pragmatism: Aligning multiple sustainability frameworks (CSDDD, CSRD, SFDR, Solvency II) without redundancy remains a challenge. For example, insurers already address sustainability risks under Solvency II’s ORSA (Own Risk and Solvency Assessment), so additional plans under the CSDDD may overlap.

• Protection Gaps: Despite extensive reporting requirements, industry participants noted the importance of focusing more on action to address real-world challenges, like the growing natural catastrophe protection gap.

• Scope of Application: Critics raised concerns that the Directive’s thresholds (1,000 employees, €450 million turnover) exclude many smaller, highly polluting entities, limiting its climate impact.

• Extrajurisdictional Reach: The directive applies to non-EU companies operating in Europe, emphasizing high standards globally but potentially causing friction, particularly with transatlantic operations.

Insurers’ Role in Driving Sustainability

Thea Utoft Høj Jensen highlighted the pivotal role insurers play in combating climate change:

• Financing Green Transition: Insurers finance not only green investments but transition pathways, helping businesses adapt to a low-carbon economy.

• Promoting Climate Resilience: By offering detailed risk assessments to property buyers and renters, insurers assist municipalities and governments in climate adaptation planning.

• Closing the Protection Gap: Insurers actively work to raise awareness and address the growing protection gap for natural catastrophes, as extreme weather events continue to escalate in frequency and severity.

Debate Highlights

During the audience Q&A, several critical points were raised:

• Process Integrity: Some participants expressed concerns about the rapid adjustments to the CSDDD, questioning if these changes undermine trust in EU lawmaking.

• Data Shortages: Simplifications limiting due diligence to tier-one suppliers may reduce insurers’ access to data needed for risk assessments, particularly for scope 3 emissions in investments and insured operations.

• Reputational Risk: The Directive’s extraterritorial application presents challenges for insurers operating in jurisdictions with anti-ESG sentiment.

Conclusion

The forum underscored the importance of balancing sustainability obligations with practicality. While simplifications under the Omnibus Packages are welcomed by industry players, concerns remain about losing momentum in addressing the urgency of climate change and protecting human rights. Insurers play an essential role in bridging critical gaps—whether in financing green transitions, promoting resilience, or addressing protection gaps for natural disasters.

The discussion highlighted the need for consistency across Directives and frameworks to avoid redundancy and ensure coherence. Ultimately, the industry intends to focus less on reporting and more on tangible action to meet the ambitions of the Green Deal.