…we are at the voluntary phase of the adoption roadmap, which lasts between now and December, 2027. That, it is expected that public interest entities should join the adoption train now at this voluntary phase. Joining at this phase is very important because there will be no regulatory sanctions. Therefore, adopting entities can make mistakes and learn, thereby getting better at the implementation of the standards. They would have prepared themselves for the mandatory period when regulatory sanction will kick in.
In furtherance of the Memorandum of Understanding (MoU) between the Financial Reporting Council (FRC) of Nigeria and the Nigerian Integrated Reporting Committee (NIRC) for the advocacy, capacity building and implementation support for International Sustainability Standards Board’s IFRS S1 and S2 adoption in Nigeria, the FRC and NIRC organised an industry-specific workshop on the implementation of ISSB’s IFRS S1 & S2 for the insurance companies and other financial institutions at Abuja Continental Hotel on 12th and 13th March. The workshop was attended by the who is who in the insurance industry and was declared open by both the Commissioner for Insurance and the Executive Secretary of the FRC.
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This is a continuation of a similar industry specific workshop held last year for the banking, oil and gas and telecommunication industries. The difference is that, this time, the training was a bit more in-depth and touched upon the challenges peculiar to the insurance industry. Participants left the venue with clear knowledge of what they are required to disclose, going by the requirements of IFRS S1 & S2. Of particular note are the cross industry and industry-specific metrics and targets, including how to apply the Greenhouse Gas Protocol to calculate emissions classified into scope 1, Scope 2 and Scope 3 emissions.
The insurance industry is an important industry in the implementation of IFRS S1 and S2 because it is key in underwriting climate related risks which may be climate related transition risks or climate related physical risks, as well as facilitating engagement with climate related opportunities. IFRS S2 recognises non-traditional products of the insurance industry to include annuities, alternative risk transfers and financial guarantees, stating that entities in the insurance industry also engage in proprietary investments. Insurance entities provide products and services that enable the transfer, pooling and sharing of risks necessary for a well-functioning economy. According to IFRS S2, insurance entities, through their products, can also create a form of moral hazard, reducing incentives to improve underlying behaviour and performance, and thus contributing to sustainability-related impacts.
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The above explains why IFRS S2 industry specific disclosures expect the insurance industry to first report the integration of ESG in its investment portfolio, given its huge investments. This will show the extent to which sustainable investment strategies, such as negative/exclusionary; positive/best-inclass; norms-based and sustainability-themed investment strategies are applied in its investment decisions. The IFRS S2 industry specific disclosures also expect the industry to report the net premiums written for policies related to energy efficiency and low carbon technology, including renewable energy insurance, energy savings warranties, and carbon capture and storage insurance.
It is expected that both NAICOMM and Nigeria Insurance Association (NIA) will intervene to ensure that two or three insurance companies can raise their hands and be counted among the voluntary adopters. The four companies that made the early adoption are to be found among banking, oil and gas and telecommunication industries and, therefore, there are experiences to draw from in these industries unlike the insurance industry.
It is also expected to disclose how it incentivises health, safety or environmentally responsible actions or behaviours through incorporation of clauses in the insurance policies sold to clients and through the pricing structure of the policies. These are in addition to cross-industry metrics and targets, one of which is about facilitating the exploitation of climate-related opportunities.
The above gives insight into how important the insurance industry is to the implementation of IFRS S1 and S2 in Nigeria and why FRC-NIRC specifically targeted this industry in the industry specific capacity building initiative. However, the first sad news is that none of the insurance companies made the early adoption phase and another sad news is that at the point of organising this specific industry training for the insurance sector, no insurance company has made the voluntary adoption list. It is not clear why this is so, but discussions at the training appear to point to lack of awareness on the part of the board and hence resorting to a wait for the mandatory phase. This is a potentially dangerous step for the insurance industry.
It is expected that both NAICOMM and Nigeria Insurance Association (NIA) will intervene to ensure that two or three insurance companies can raise their hands and be counted among the voluntary adopters. The four companies that made the early adoption are to be found among banking, oil and gas and telecommunication industries and, therefore, there are experiences to draw from in these industries unlike the insurance industry.
…the FRC-NIRC industry specific training is moving to the manufacturing sector, which is scheduled to hold in Lagos early April. It is important to note that these capacity building trainings are at no costs to participants and are conducted free of charge.
I have hinted earlier that we are at the voluntary phase of the adoption roadmap, which lasts between now and December, 2027. That, it is expected that public interest entities should join the adoption train now at this voluntary phase. Joining at this phase is very important because there will be no regulatory sanctions. Therefore, adopting entities can make mistakes and learn, thereby getting better at the implementation of the standards. They would have prepared themselves for the mandatory period when regulatory sanction will kick in. The four early adopters can testify that so far, there has been no regulatory sanctions even in the face of any mistake.
Meanwhile the FRC-NIRC industry specific training is moving to the manufacturing sector, which is scheduled to hold in Lagos early April. It is important to note that these capacity building trainings are at no costs to participants and are conducted free of charge.
In conclusion we call on the insurance industry to ensure that at least two or three insurance companies make it to the voluntary phase of adoption going by the adoption roadmap.
Innocent Okwuosa is the chairman, Nigerian Integrated Reporting Committee and immediate past president, Institute of Chartered Accountants of Nigeria (ICAN).
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