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Climate Risk Management

Environmental issues and climate change are factors that are expected to have a mid and long-term effect on Sampo Group’s businesses. Climate-related risks can be categorized into physical risks and transition risks. Physical risks can be further classified into long-term weather changes (chronic risks) and extreme weather events such as storms, floods, and droughts (acute risks). Transition risks refer to risks arising from the shift to a low carbon economy, such as changes in technology, legislation, and consumer sentiment.

Insurance Operations

Physical risks are risk factors affecting especially the financial position and results of non-life insurers within Sampo Group. The increasing likelihood of extreme weather conditions and natural disasters is included in internal risk models of the Group companies. Climate-related risks are also managed effectively with reinsurance programs and price assessments. Since climate change could increase the frequency and/or severity of physical risks, the Sampo Group companies conduct sensitivity analyses using scenarios in which the severity of natural catastrophes is assumed to increase.

The Sampo Group companies also help their corporate and private customers to manage physical climate risks. Extreme weather events can, for example, damage properties, lead to crop failure and business interruption. Loss prevention is an essential part of insurance services, as it helps customers to reduce economic losses and mitigates the impacts of climate change.

The transition to a low carbon economy will also result in risks, especially for sectors dependent on fossil fuels. The European Insurance and Occupational Authority (EIOPA), has identified transition risks linked to policy, legal issues, technology, market sentiment and reputation for non-life insurers. Depending on the nature, speed, and focus of these changes, transition risks may pose varying levels of financial and reputational risk to organisations.

Investment Operations

The Sampo Group companies’ investments can be exposed to both physical risks and transition risks, depending on the investment in question. Investments are particularly exposed to physical risks in the form of losses incurred from extreme weather events. The transition to a low-carbon society with potentially increasing environmental and climate regulation, more stringent emission requirements, and changes in market preferences could in turn cause transition risks for the Group’s investments and possible revaluation of assets as operating models in carbon intense sectors change.

The Group companies have different approaches to managing climate-related risks, ranging from exclusion of certain sectors to supporting investee companies that contribute to the transition to a low carbon economy. Investment opportunities are carefully analysed before any investments are made and climate-related risks are considered along with other factors affecting the risk-return ratio of individual investments. Methods used include, for example, annual analysis of the carbon footprint and climate impact of investments, sector-based screening and ESG integration, monitoring the geographical distribution of investments and engagement with investee companies. Breaches against the Paris Agreement, such as failure to mitigate climate change impacts and opposition to climate change mitigation are monitored as part of norms-based screening.

Further information is available in the investment policies of the Group companies.

Climate-risks are also included in real estate investment processes. The climate-risk assessment takes into account different climate change scenarios to identify short, medium and long-term impacts on direct real estate investments. The identified risks and opportunities are mirrored against the real estate investment portfolio and their significance to business is assessed both from the perspective of risk management and the estimated financial impact of the risk.

Updated 3 Jan 2022