Ken Silverstein | Forbes | December 7, 2018
Just as 200 nations are meeting in Poland to discuss their climate initiatives, Europe’s insurance sector is unleashing its own plan: it is increasing the pace of its investments in green energy while divesting of some businesses that are carbon intensive. Will American insurers make similar moves?
It’s largely a business decision for the Europeans — that the insurance sector does not want to get caught holding the bag when it comes to climate risks. But it is also responding to public pressures from activist investors and environmental groups, reasoning it will positive for their brands to be perceived as green. That is why AXA, Europe’s second largest insurer, has said it would stop covering coal power-related projects as well as oil pipelines that would transport tar sands, a gooey and thicker fuel that is dirtier and harder to clean up.
AXA said the decision would cost it $100 million, in the short run. The company earned close to $100 billion in revenues in 2017.
“As a global insurer, we see the long-term risks for people and society with climate change. This is why AXA decided a few years ago to use every lever possible to tackle climate change” says Thomas Buberl, chief executive of AXA, in an email response to this reporter's questions.
“We have made several ambitious decisions notably committing 12 billion euros in green investments by 2020 and divesting 3 billion euros from carbon-intensive polluters principally the coal industry,” he continues. “We also stopped insuring projects to build coal-fired power plants or any operation for oil sands mining and associated pipelines.”
Europe’s four biggest insurers have now placed restrictions on coal. That includes the continent’s biggest carrier, Allianz, as well as Generali and Zurich Insurance Group. Meantime, Reinsurance giants Swiss Re, Munich Re and SCOR have underwriting restrictions on such projects. And at least 19 European insurers have divested in coal-related assets. Those include Generali, Lloyd’s, Hannover Re, AG2R La Mondiale and Groupama.
The efforts are coinciding with the climate studies released by the United Nations and U.S. scientists that urge immediate action — all to keep temperatures from rising more than 3.6 degrees Fahrenheit by mid century.
"The United Nations secretary-general is counting on us, all of us to deliver,” Poland's deputy environment minister, Michal Kurtyka told the conference, as reported by NBC News. “There is no Plan B.”
The Intergovernmental Panel On Climate Change, in fact, says that humans are responsible for global warming with 95% certainty. It specifically refers to the burning of fossil fuels and notably coal that is responsible for about a third of all man-made CO2 releases. If nothing changes, severe weather events could increase and intensify, leading to ever-larger payments by insurance companies.
In 2017, insurance industry losses were the greatest ever at $138 billion, says the International Association of Insurance Supervisors and the Sustainable Insurance Forum. Total economic losses, meanwhile, were $340 billion, it adds, noting that that difference is made up by either the individuals who suffered the losses by taxpayers who subsidized them.
Insurers could stop providing coverage or raise premiumsamong all policyholders. European carriers have climate strategies that consist of avoiding the root cause of CO2 releases, which is to say insuring coal-based power plants. Why not American insurers?
“I’d say it's mainly because no one has pressured them much on it,” says Ross Hammond, with Insure Our Future. “In Europe, we've had a campaign running the past two years which has been a combination of lots of private, polite meetings mixed with noisy ... protests.”
To that end, many studies say that environmentally conscious-investing is improving financial performance while also driving a competitive advantage, fostering innovation and building customer loyalty. A failure to be sustainable, conversely, could impact the brand.
It’s no surprise then that the green movement’s strategy has moved into its next phase -- to get the biggest banks to quit lending money to coal companies as well as to get the major pension funds to sell off their shares of coal companies. For example, Morgan Stanley and Wells Fargo have become the two most recent financial institutions to alter their lending practices. They join Bank of America Corp., Citigroup Inc. and GoldmanSachs Group Inc.
“Above all though, our conviction has always been that the fight against climate change requires collective action,” says AXA’s Buberl. “This is why we hope others in the sector follow suit and that COP24 can bring about fruitful exchange to collaborate and contribute to the global energy transition.”
COP24 refers to the global climate talks and the concerted efforts by countries and companies combined to cut their carbon footprints. Market demands along with technological advances are proving a force to be reckoned with, although the cause needs to pick up speed and to win U.S. political support if the climate goals are to be achieved.