Billions of pounds could be unlocked for sustainable investments in Europe if Solvency II regulation is changed, the Association of British Insurers (ABI) has declared.
It warned that the regulation's focus on a one-year solvency measure prevents insurers from investing in long-term projects that could help mitigate climate change.
Just 1.2% of the UK industry's £1.8trn in assets under management are currently held in environmental, social and governance (ESG) investments like renewable energy.
The ABI said Solvency II could do more to consider sustainability factors for assets, particularly given the good match between long-term investments and liabilities.
This should be a key focus of a review in 2020, with the ABI's head of prudential regulation, Steven Findlay, saying that insurers hold a "unique position" to boost green innovations.
"But we have to be practical about what will make a difference," he continued
"Those managing assets need to be able to demonstrate to boards and shareholders that greener investments are good for their balance sheet, not only the planet."
The ABI also warned that there is a shortage of high-quality and consistent ESG data in the financial system, making it difficult to identify the best green investment opportunities.
Some insurers are developing their own approaches and specialist teams, but it is feared that a piecemeal approach will take an unnecessarily long time.
Instead, the ABI said there is a role for regulators to play across the full breadth of the financial sector to help improve the availability and consistency of data.
Its proposals are in response to a Prudential Regulation Authority consultation, while the ABI also supports Financial Conduct Authority guidance to boost climate-related financial disclosures.
"Insurers are more aware than most of the increasing threat posed by climate change given they are in the business of identifying future risks," Findlay said.
"Moving towards a lower-carbon economy is in the interests of everyone, which is why we are setting out steps to help unlock billions of pounds of investment for innovative, greener projects."