Insurance industry and Nigeria’s IFRS S1, S2 voluntary adoption 

Innocent Okwuosa, PhD, FCA,

Innocent Okwuosa, PhD, FCA, immediate past President, Institute of Chartered Accountants of Nigeria, is the Chairman, Nigerian Integrated Reporting Committee (NIRC). He can be reached on +234 8128131345

Chartered accountant, academic, former ICAN president and chairman, Nigerian Integrated Reporting Committee, offers valuable reasons why the insurance industry must join the voluntary phase of IFRS S1 & S2 adoption in Nigeria 

In furtherance of the 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 ISSB’s IFRS S1 & S2 adoption in Nigeria, the FRC and NIRC organised 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, 2025. The workshop was attended by almost all who matter in the insurance industry and was declared open by both the commissioner for insurance and the executive secretary, FRC.

This is a continuation of a similar industry specific workshop held last year for 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 & 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 risk 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.

The above explains why IFRS S2 industry specific disclosures expect the industry to first disclose the integration of ESG in its investment portfolio given the huge investment undertaken by the industry. This will show the extent to which sustainable investment strategies such as negative/exclusionary; positive/best-in-class; norms-based and sustainability-themed investment strategies are applied in their investment decisions. IFRS S2 industry specific disclosure also expects the industry to disclose 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.

They are also expected to disclose how they incentivise health, safety or environmentally responsible actions or behaviours through incorporation of clauses in the insurance policies sold to clients and through 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 & 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 discussion at the training appears 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 NAICOM 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. 

I have hinted in my previous write up 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 this voluntary phase is very important because there will be no regulatory sanctions during the voluntary phase. 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 where regulatory sanction kicks 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 moves 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 cost to participants and are therefore 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.

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