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After warning about the escalating risks of climate change for decades, many big insurers are now moving away from coal.
As professional risk managers, insurance companies quietly shape modern society, deciding what type of projects can be financed, built and operated. After warning about the escalating risks of climate change for decades, many big insurers are now moving away from coal. Only the US insurance industry is missing in action.
Since 2015 17 major insurance companies have divested from coal, withdrawing an estimated $30 billion from the sector in the process. More importantly, six insurers – including industry giants such as Allianz, AXA and Swiss Re – have stopped or limited insuring coal projects. “The insurance industry is stating its position globally, and that is that coal isn’t a sustainable investment,” an energy manager at KPMG recently stated.
A leading insurance broker has warned that the withdrawal of insurers from coal could “impact owners, developers and their investors’ ability to obtain commercially viable insurance terms”. Once new coal projects are no longer insurable, they will no longer be bankable, and many existing coal facilities may have to close down.
UN agencies have warned that no new coal power plants can be built and existing projects have to be retired early if the goals of the Paris Agreement are to be met. Through their exit from coal, and by developing innovative risk management services for clean energy, insurance companies can help accelerate the necessary transition from fossil fuels to a low-carbon economy.
So far, the insurers’ shift away from coal has been concentrated in Europe. In addition the two biggest Japanese life insurers recently refused to provide funding for a giant coal mine in Australia over its devastating climate impacts. Only US insurers have so far refused to take action on coal and other fossil fuels.
US companies such as AIG, Liberty Mutual, Chubb and Berkshire Hathaway belong to the small group of actors which are insuring coal projects around the world. US insurers are also heavily involved in fossil fuels as investors. According to Ceres, a group advocating for responsible investments, the 40 largest US insurers have invested more than $450 billion in oil, gas, coal and electric utility stocks and bonds, and are even more exposed to fossil fuels than average index funds.
A recent survey by the Asset Owners Disclosure Project qualified 21 of 24 major US insurers as bystanders or laggards in terms of their climate awareness. By ignoring the potential impacts of climate change, many US insurers not only fail to support climate mitigation, but put their own assets and liabilities at risk as well.
In 2017, hurricanes, wildfires and other weather disasters created more than $300 billion in damages in the US and triggered significant losses for the insurance industry. US insurers have not responded to such losses by addressing the root causes of climate change, but by raising their rates or withdrawing from the regions most at risk of climate disasters altogether. “Insurers are backing fossil fuel companies and then charging you for climate change risks”, the Los Angeles Times recently exclaimed.
In July 2018, 17 leading US climate and consumer organizations, including Greenpeace, Public Citizen and the Sierra Club, called on US insurers to join the global shift away from coal and stop insuring and investing in coal and tar sands. “It is not acceptable for the insurance industry to abandon people living in areas suffering the worst impacts of climate change while continuing to exacerbate climate change by insuring and investing in coal and tar sands projects”, the advocacy groups warned.
In response to President Trump’s climate denial, more than 3,500 US businesses, cities and colleges have declared their support for the Paris Agreement as members of the “We Are Still In” coalition. Many of these actors have reduced their carbon footprint and divested from fossil fuels in recent years. Urging their insurers to exit the coal sector is the next logical step for them. San Francisco called on its insurers to ditch coal at the end of July, and other actors are currently preparing similar steps.
Insurance companies are expected to protect us from catastrophic risks. “If we are not leading the charge on climate change, who would?”, Allianz CEO Oliver Baete asked when his company announced its exit from the coal sector in early May. With pressure from the ground, insurance customers can make sure that US insurers fulfil their fundamental mission to protect us from catastrophic harm.