Risk managers have created a new set of principles designed to support the development of credible, consistent, and transparent Sustainability-Linked Insurance (SLI) solutions across the market.

European Risk management association FERMA has published its Sustainability-Linked Insurance Principles (SLIPs), at a time when it said  Sustainability-Linked Insurance continues to evolve, creating the need for a shared understanding and consistent application.

SLI products link insurance terms, such as pricing or coverage features, to the achievement of predefined sustainability objectives. Without clear guidance, inconsistent practices or unsubstantiated claims could undermine market confidence.

Philippe Cotelle, (pic) President, FERMA said: “Sustainability-Linked Insurance must be built on clarity, consistency, and purpose. By establishing robust principles, we can ensure these solutions are credible, measurable, and aligned with recognised sustainability goals, while avoiding fragmentation across the market. In doing so, FERMA’s aim is not only to help strengthen these insurance frameworks but also empower risk managers and insurers to play an increasingly meaningful role in advancing resilience, supporting long-term value creation, and contributing to a more sustainable global economy.”

The SLIPs aim to address this by providing a common framework for designing, implementing, and evaluating SLI solutions, while safeguarding market integrity and enhancing trust among stakeholders. The voluntary framework establishes clear expectations for key performance indicators (KPIs), sustainability performance targets (SPTs), contractual structures, reporting, and verification processes.

The SLIPs are structured around a practical five-step approach, offering actionable guidance for integrating sustainability into underwriting practices.

• Select Key Performance Indicators (KPIs): Identify KPIs material to the insured’s sustainability strategy, business activities, and risk profile, which are measurable, relevant to the insurance coverage, and may cover environmental, social, or governance factors.
• Set Sustainability Performance Targets (SPTs): Define specific, measurable, and time-bound targets linked to the selected KPIs which are ambitious, go beyond business-as-usual, and align with broader sustainability strategies.
• Adapt Insurance Terms and Conditions: Link insurance contract features to sustainability performance. This may include premium adjustments, bonus/malus mechanisms, changes to deductibles, or contributions to resilience initiatives.
• Reporting and Disclosure: Ensure transparent, consistent, and regular (at least annual) disclosure. This should include KPI definitions, methodologies, performance against targets, impacts on insurance terms, and any material changes or exceptional events.
• Verification: Require independent third-party verification of performance against KPIs and SPTs to ensure accuracy, reliability, and overall credibility of the programme.

It explained together, these five components create a comprehensive framework that enhances transparency, promotes consistency, and supports the alignment of underwriting practices with sustainability objectives.

Robert Eigenheer, head of corporate finance at Swiss Federal Railways (SBB) said: “The strength of the Sustainability-Linked Insurance Principles lies in their practicality. By guiding users through a clear five-step process from selecting meaningful KPIs to independent verification, they provide a structured yet flexible pathway for embedding sustainability into the insurance ecosystem, while delivering measurable outcomes and greater transparency across the insurance lifecycle. This benefits the entire insurance sector, which will be among the sectors most affected by the negative impacts of climate change.”