Strengthening climate risk governance across financial services from insurance leadership to market advantage

As Bermuda hosts its annual Risk Summit, it is a timely moment to reflect on the advanced state of the insurance and reinsurance sector in managing sustainability related risks. Climate risk management in particular has evolved significantly, supported by improved data, advancing technology, and expanding regulatory guidance. It is increasingly clear, however, that robust governance of climate and sustainability related risks is no longer relevant solely to insurance and reinsurance. Other areas of financial services, from private wealth and investment management to banking and funds, are now moving rapidly to integrate sustainability into their core governance structures. KPMG’s 2025 Global CEO Outlook shows that nearly two thirds (65%) of CEOs report that sustainability is fully embedded in their business strategy and view it as critical to long term success¹. This shift is occurring despite significant headwinds for the sustainable transition, including shifting priorities in an increasingly volatile and fragmented geopolitical landscape. The underlying driver is the growing recognition of the financial materiality of sustainability risks, which firms are increasingly seeking to identify, measure and price into decision making.

The World Economic Forum’s Global Risks Report 2026 underlines this trend, highlighting the dominance of environmental and broader ESG linked threats in the long-term global risk landscape. According to this report, extreme weather events, biodiversity loss, ecosystem collapse and critical changes to Earth’s systems rank among the most severe risks over the next decade; environmental destabilisation is identified among the most significant long term risks. While short-term priorities have shifted towards trade barriers and economic fragmentation, respondents continue to anticipate a turbulent decade shaped by compounding climate related pressures and sustainability driven disruption². For firms operating across financial services sectors, there is growing awareness that sustainability risks can affect investment performance, operational resilience, market access and reputational standing. Climate-related physical and transition risks can alter asset values and strategic positioning, often transmitted through established channels such as litigation risk, counterparty exposure and investment risk.

Sustainability risks also manifest socially and operationally: changing societal expectations, labour and human rights issues, and governance failures can all trigger regulatory scrutiny and reputational damage. The financial consequences are increasingly evident in transactions. In KPMG’s 2024 Global ESG Due Diligence Study, 45% of surveyed investors reported encountering a material ESG finding with significant deal implications, with more than half of these findings ultimately becoming deal stoppers, a clear illustration of how governance weaknesses can translate directly into financial outcomes and long-term impacts on enterprise value³.

Given the potentially systemic nature of these risks, regulators are intensifying their focus on board level accountability. In February 2026, the European Central Bank imposed a €7.6 million penalty on Crédit Agricole for failing to meet supervisory requirements relating to climate risk materiality assessments, signaling a decisive shift from guidance to enforcement⁴. International Finance Centres (IFCs) are increasingly recognising the importance of setting clear expectations to support jurisdictional stability and protect the reputation of their financial services ecosystems, while also strengthening competitiveness by offering confidence, clarity and consistency to global clients. Bermuda adopted a pragmatic, phased approach when the Bermuda Monetary Authority (BMA) issued its Guidance Note on the Management of Climate Change Risks for Commercial Insurers, embedding expectations around board accountability, risk management integration and scenario analysis. The Cayman Islands have taken a similarly targeted approach, issuing sector specific supervisory circulars to banks and insurers on integrating climate and ESG risks into governance and strategy⁵. Other IFCs have adopted broader, cross-sectoral approaches. Guernsey’s updated Finance Sector Code of Corporate Governance explicitly requires boards to consider climate change impacts on strategy and risk profile, and to disclose where appropriate. In Jersey, the regulator has confirmed plans to publish a sustainable finance guidance note in Q1 2026, clarifying minimum expectations for assessing and managing sustainability and climate related risks across all regulated businesses⁶. Bermuda has also taken an important step in modernising fiduciary governance in the private wealth sector. Under the Trustee Amendment Act 2025, trustees now have statutory clarity that they may consider environmental and social factors alongside financial performance and beneficiaries’ wishes when making investment decisions.

Across jurisdictions, the regulatory direction of travel is clear: boards and senior leadership are expected to understand how sustainability related risks permeate traditional risk categories, including credit, market, operational, strategic and reputational risk.

Good practice increasingly centres on embedding sustainability directly into governance frameworks. This includes ensuring boards have the appropriate competence and information to oversee ESG considerations effectively, integrating sustainability into strategic planning, enhancing internal reporting on ESG exposures and ensuring directors understand evolving regulatory expectations. Done well, this is not simply a compliance exercise: it strengthens decision quality, supports resilient growth, and improves how firms allocate capital, manage downside risk and compete for mandates. At the same time, anti-greenwashing controls are rising in prominence. In September 2025, the BMA consulted on strengthening rules for the investment funds sector, introducing requirements to enhance the integrity of sustainability disclosures and prohibit misleading fund names. These steps are consistent with a broader international push to help ensure sustainability claims are fair, clear, substantiated and aligned to actual product characteristics. Technology is playing a transformative role in supporting these governance responsibilities. In the insurance sector, KPMG’s 2025 Insurance CEO Outlook 73% of CEOs are prioritizing AI investments to streamline underwriting, claims, and customer experience⁷. These capabilities can materially enhance real time ESG risk sensing and board reporting. Across all industries, KPMG’s 2025 Global CEO Outlook reports that 79% of CEOs see AI as crucial for improving sustainability data quality and reporting⁸.

Taken together, developments in Bermuda, other IFCs and global markets reflect a decisive shift: sustainability and climate risk are now fundamental governance issues across many financial services sectors, not just insurers. For Bermuda, the opportunity is clear. Strong, proportionate governance expectations, combined with the island’s depth of expertise and continuing innovation, can reinforce the jurisdiction’s reputation as a high quality, future-ready jurisdiction where capital can be deployed with greater confidence.

As regulatory expectations sharpen and stakeholder scrutiny intensifies, firms that embed ESG considerations into governance frameworks, supported by robust data, technology and board level accountability, are likely to be better positioned to manage long-erm risks, improve resilience, differentiate their offerings and deliver sustainable value to investors.

David leads the Sustainability Advisory practice for KPMG Islands Group (KPMG Islands Group is a regional member within KPMG, with member firms located in 12 island jurisdictions). He supports clients in advancing sustainable and innovative finance through a tailored suite of regulatory, structuring, governance, and risk advisory services. Leveraging the breadth of expertise across his team and global network, he leads a team that helps a broad range of public and private organisations accelerate their decarbonisation agendas, deliver sustainable transformation and impact, and chart a path to sustainable value creation - underpinned by strategic guidance, practical solutions, and industry-leading insights.