Beyond Risk Transfer—Rethinking the Role of Green Insurance in Sustainability Policy

Environmental risks associated with climate change, biodiversity loss, and sustainability transitions extend beyond the allocation of financial losses. Research recognises insurance’s role in environmental risk management and sustainable finance. It also considers climate adaptation and governance, but remains fragmented across disciplines and analytical levels. This study develops an integrative conceptual framework distinguishing risk transfer, established insurance incentive and portfolio effects, and risk transformation. Drawing on a theory-informed synthesis of the literature, it connects insights from environmental economics and principal–agent theory. Signalling and institutional theory provide complementary perspectives. Risk transformation is defined as an outcome in which insurance-related mechanisms make a demonstrable contribution to sustained and independently verifiable reductions in underlying environmental risk or its alterable drivers. Such transformation may occur within a single insured organisation; cross-level transmission may broaden or amplify its effects but is not a defining condition. The framework identifies four potential economic, behavioural, informational, and institutional pathways, which may operate separately or jointly, with capital allocation incorporated into the economic pathway. A context-specific operational protocol specifies ex ante magnitude, persistence, attribution, and verification criteria without imposing a universal scale across heterogeneous risks. The framework also identifies pathway complementarity, conflict, and single-path failure and specifies the boundary conditions that determine whether the pathways generate substantive risk reduction. It explains when effects remain confined to compensation, conventional incentives, insured-loss reduction, risk selection, portfolio de-risking, or symbolic compliance. The study concludes by formulating categorised research propositions and corresponding empirical strategies.