EU legislation against global deforestation also applies to insurers

The European Parliament is in favour of introducing EU legislation on deforestation-free products. These rules are intended to ensure that European citizens will no longer be able to buy products that contribute to the global destruction of forests. This proposed legislation has major consequences for insurers.

The European Parliament (EP) this week expressed its support for a deforestation regulation of the European Commission (EC) that will also apply to financial institutions, including insurers. The proposed new law obliges insurers to check (through due diligence) whether products sold in the EU have not been produced on deforested or deforested land anywhere in the world. With this, the parliament and the Commission want to stop the "alarming pace" of deforestation and thus climate change and loss of biodiversity. If it turns out that a company does not comply with the deforestation regulation, a financial institution may not invest in it.

Previously, in the Assessment of New Commission Proposals, the Dutch government stated that combating deforestation through the financial flows (investments) of financial institutions can be better tackled through existing initiatives, such as the EU Taxonomy Regulation and the future Corporate Sustainability Reportive Directive (CSRD). The new regulation means additional legislation to address problems that already exist. It increases the administrative burden and compliance costs. Money and time that the financial sector can then no longer invest in sustainable solutions, such as establishing supply chains where deforestation does not take place.

The Dutch Association of Insurers is working with Insurance Europe and other financial umbrella organisations to put forward these views in the negotiations that are expected to start this autumn between member states and parliament on the way to a final law.