We have been proud to work with some of the world's most forward-thinking regulators on ways to anticipate and tackle the risks associated with climate change.

California Department of Insurance

 Since 2016, we have collaborated with the California Department of Insurance to analyze climate change-related risks to insurers’ bond and equity portfolios.

In our first collaboration, we provided support for the CDI’s Climate Risk Carbon Initiative – an effort to expose potential climate change-related financial risks faced by California insurance companies as a result of their exposure to fossil fuel-based investments. 2DII’s role was to perform a forward-looking scenario analysis of insurer investments, with a special focus on thermal coal investments. The Department posted the aggregate scenario analysis results on its website and sent individual reports to insurers with the most assets under management and with the greatest exposure to thermal coal.

In addition, in 2018 2DII contributed to a stress test intended to determine climate-related risk to insurance industry investments, the first of its kind in the United States. As part of this work, 2DII conducted an analysis of the 672 insurers in California’s market with more than $100 million in annual premiums, which account for almost $4.3 trillion in investments. It was arguably the most comprehensive financial stress test analysis ever conducted for the insurance sector. Key figures from the forward-looking scenario analysis have been published on the Department’s website.

In our most recent collaboration, in January 2019, the Department publicly released the results of our analysis of the climate risk exposure faced by insurers’ investments. The climate risk scenario analysis was the first of its kind to include analysis of transition risks as well as physical risks (such as drought, floods, and forest fires) faced by insurers’ assets.

Collaboration with the New York Department of Financial Services

In June 2021, 2DII collaborated with NY Department of Financial Services in a study of New York domestic insurers’ exposure to transition risks. The study is among the first by a US supervisor to measure the industry’s exposure to climate-related financial risks, following 2DII’s collaboration with the California Department of Insurance.

DFS, the largest state financial supervisor in the country, supervises and regulates the activities of nearly 1,800 insurance companies with assets of more than $4.7 trillion and approximately 1,500 banking and other financial institutions with assets totaling more than $2.6 trillion. 2DII’s analysis covered 250 insurance companies with portfolios worth more than $550 billion.

2DII analyzed the transition risks of New York domestic insurers by assessing the alignment of their equity and corporate bond portfolios using their 2019 Schedule D data against different climate scenarios. The exposure and scenario analysis used in 2DII’s analysis is based on the open-source Paris Agreement Capital Transition Assessment (PACTA) model, which has been used by more than 3,000 financial institutions, governments, supervisory authorities, and industry associations.

The report’s findings include:

  • New York domestic insurers’ investments had meaningful exposure to carbon intensive sectors. The U.S. recently rejoined the Paris Agreement, which seeks to keep global temperature rise in this century to well below 2°C above pre-industrial levels. The five-year forward-looking capital plans of most companies in these sectors in which insurers had invested were not aligned with the Paris Agreement, with the exception of natural gas production, natural gas-fired power generation, and electric vehicle production. In many cases, insurers’ portfolios were less Paris-aligned than market benchmarks.
  • Life insurers generally had greater exposure to carbon intensive sectors than P&C and health insurers. Exposure to high-carbon technologies also varied dramatically among individual insurers. While most insurers had single-digit exposures to the fossil fuel sector as a percentage of their corporate bond and equity portfolios, several P&C insurers and a few life insurers had exposures that were significantly higher. When insurers underinvest in low-carbon technologies, they are exposed to greater transition risks and miss out on many of the opportunities that arise from the low-carbon transition.

Read more here.

PACTA stress test with the Bank of England

As part of our climate scenario analysis work, 2DII supported the Bank of England with designing the climate-related aspects of its 2019 stress test. The tool examines exposure to different climate-relevant sectors in order to calculate the effects of climate stress on a portfolio’s value. It can be used by UK insurance companies, as well as by other investors interested in understanding their performance under the UK stress-test.

The tool builds on our “Storm Ahead stress test scenario report (January 2019), which provides guidelines for integrating scenario analysis into stress tests of regulated entities.

Supporting the Bank of England in the 2019 stress test


In June 2019, the Bank of England Prudential Regulation Authority launched its biennial insurance stress test, asking the biggest regulated life and general insurers to provide information about the impact of a range of stress tests on their business. The stress test also includes an exploratory exercise related to climate change, which examines potential impacts on firms’ liabilities and investments stemming from physical and transition risks.

European Insurance and Occupational Pensions Authority (EIOPA)

As part of our PACTA work, we have collaborated with a wide range of national and transnational regulators to help them assess climate-related risks to their regulated entities. Our partnership with EIOPA aims to identify and quantify potential climate transition vulnerabilities in the portfolio of European insurers, and covers the $10 trillion AUM that is managed by insurers on their asset side.

Ongoing partnership with EIOPA, to be completed in 2020

In December 2020, EIOPA published a new sensitivity analysis of climate-change related transition risks in the investment portfolio of European insurers. Their report builds on 2° Investing Initiative’s PACTA methodology and the climate risk sensitivity scenarios developed by 2DII to quantify potential financial losses under a range of different circumstances. The scenarios use the concept of a delayed “Inevitable Policy Response” (IPR) and also include the Forecast Policy Scenario developed by the IPR consortium, convened by UN Principles for Responsible Investment.

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