Unfriending coal: is the Insurance industry doing enough?
It will come as no surprise to anyone that Climate Change is a hot topic in the current news cycle, and for good reason: the last five years have been the warmest on record, with devastating fires in California, Australia and Brazil, and flooding in Europe and Africa. Greta Thunberg took the stage at the World Economic Forum in Davos to plead with world leaders to reduce carbon emissons, which increased by a record 2% in 2018. A recent UN report tells us that “growing climate impacts increase the risk of crossing critical tipping points”.
Concern about the climate, and the role of government and big business in addressing the steps required to mitigate the impact of carbon emissions, has gone mainstream. Young people are at the forefront of global mobilisation for action, but companies increasingly face pressure from a widening range of stakeholders, from protesters at headquarters to employees and shareholders demanding greater transparency of how their business plans to manage both their emissions, and their exposure to the increasingly real consequences.
How does this affect the Insurance Industry specifically?
There are two main factors that place the Insurance industry as a key player in this debate. The first is that by the nature of their business, increasing intensity and frequency of extreme weather events creates a significant risk to their ability to operate. Munich Re’s 2019 report tells us that the last two years (2017-18) saw total losses from natural catastrophes of $510 billion, of which $220 billion were insured. For comparison, the average insured losses for the last 30 years amounted to an inflation-adjusted $41 billion.
The second involves both the sector’s role in shaping industry, driven by what projects they decide to cover, and where they invest the c. $24 trillion in assets they are estimated to have under management.
The former gives Insurance companies a unique role in shaping the speed and scale of the transition to a lower carbon economy, as projects which are uninsurable are not financed, built or operated. It is also true that the narrower the field of operators is, the more expensive available insurance becomes. We are seeing a live example of this in Adani’s Carmichael project, in which pressure from protest groups has led to 58 major companies, including 16 major insurance companies distancing themselves from the project, leaving relatively few insurers with the capability to support Carmichael, and the possibility that Adani may be unable to finance the mine without sufficient risk mitigation in place. 
The scale of investment potential also means the Insurance sector can influence the direction of global economies. Where insurance companies, who are in a privileged position in terms of their access to scientific data and long-term modelling, move their funds, has a signalling effect on other investors, financial institutions and ultimately governments. A strong example of action in the Fiduciary space is Blackrock CEO Larry Fink, who has declared that climate change has become the top issue raised by clients, and has called on companies to do more to tackle it. BlackRock will withdraw more than half a billion dollars in thermal coal shares, double its number of sustainable exchange-traded funds and pressure index providers to create more environmental, social and governance-related benchmarks.
The growing momentum of anti-coal lobbying
The Unfriend Coal network, established in 2017, is a global coalition of NGOs and organisations pressuring insurance companies to move away from coal and support the transition to clean energy.
Insurance companies have shown accelerated action from 2017 to date, with the world’s first 3 insurers adopting coal exit policies in 2017, 4 following in 2018 and 10 more in 2019. The first 10 insurers to exit coal were all based in Europe, but we have also seen action expand into the US and Australia in 2019. Unfriend Coal’s 2019 scorecard tells us that at least 35 insurers with assets of more than $10 billion each have adopted some form of coal divestment policies. Their combined assets amount to $8.9 trillion, or approximately 37% of the insurance industry’s global assets.
AXA was among the first to take action with the announcement it would end all business with coal companies by 2030 in Europe and OECD countries, and by 2040 in the rest of the world, which was well received as “a new benchmark for the insurance industry” by Greenpeace. However as more companies have recently announced policies of their own, in some instances AXA is unfavourably compared. “It’s a positive step, but the change is coming too late, because Europe must phase out coal plants by 2030, anyway,” said Doug Ruley, chief counsel for legal non-profit ClientEarth.
Swiss Re and Zurich are named as leaders in ending coal insurance in Unfriend Coal’s 2019 scorecard for the comprehensive nature of their policies including both new and existing projects, and tar sands as well as coal. AXIS Capital, Generali, QBE, Allianz, Chubb, SCOR, Hannover Re, HDI Global, Aviva, Munich Re, Mapfre and Ping An amongst others have adopted less comprehensive, but relevant policies. Legal and General are also highlighted for their leadership, for their support of numerous shareholder resolutions calling for climate action, and their advocacy for industry bodies to address climate change.
What are the next steps?
A number of insurers’ climate change policies declare the cessation of directly insuring new coal-fired plants or coal mines, however questions have been raised regarding the sufficiency of these declarations. Campaigners recommend ending cover for existing coal projects as the responsible next step. More extensive policies outline the progressive exit from existing coal exposures alongside new risks, and further still, others have adopted approaches encapsulating both their direct exposure and reinsurance strategy. Those that fall below this level of comprehensiveness risk being labelled as superficial greenwashing and point scoring.
Insurers’ investment strategies are also under scrutiny as to whether they are really ‘walking the walk’, as organisations come under pressure to divest from coal and tar sands projects, both in terms of their own assests and those under management, as part of a wider ESG or sustainability stance.
What can the wider industry do?
Elsewhere in the insurance ecosystem, brokers are also being challenged to follow suit. While major brokers Aon, Marsh and WTW have released climate change policies expressing general support for the Paris Agreement, they are still under pressure to withdraw support for specific projects. 73 organisations wrote to Marsh, Aon, Willis Towers Watson, the JLT Group and Gallagher, calling on them to publicly rule out providing services to Carmichael. Peter Bosshard, Coordinator of the Unfriend Coal campaign, said: “Brokers’ climate pledges are worthless if they continue to undermine global climate targets by supporting coal expansion. All actors playing a critical role in the global economy have a responsibility to bring their businesses in line with the Paris Agreement. The Unfriend Coal campaign will pay closer attention to the role of brokers in 2019.”
The growing momentum and influence of Climate Change campaigners highlights the very real consequence of the changes in the political landscape on the financial sector. How brokers and insurers respond to this momentum has a direct bearing on the organisations’ reputational standing. Those with a clear view and appreciation of the specific drivers of their reputation are in the most favourable position to employ their corporate affairs strategy to proactively drive their corporate purpose.
Van Valdez, Head of Sector – Financial & Professional Services at alva
 Bloomberg Green, Companies Must Step Up to Tackle Climate Change, Says Larry Fink, 21st Jan 202 by Annie Massa
 Insuring Coal No More, The 2019 Scorecard on Insurance, Coal and Climate Change, Dec 2019 by Unfriend Coal
 Forbes, Axa’s Vow To Stop Insuring Coal Hits At Industry’s Soft Underbelly, 30th Nov 2019 by Scott Carpenter
 Unfriendcoal.com, Will Insurance Brokers Unfriend Coal?, 8th January 2019 by Peter Bosshard
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