"The insurance sector is the lynchpin of fossil fuel development"

Is carbon divestment making a practical difference?

"The insurance sector is the lynchpin of fossil fuel development"

Insurance News

By Mia Wallace

2020 got off to a positive start for the global finance sector when it was recognised as a top performer by global research and strategy consultancy firm, SIGWATCH, in this organisation’s annual ranking of brands most praised by activist groups (NGOs) for the second year running. Listed amongst the top 10 “most praised” companies were AXA, Allianz, Swiss Re, and SCOR, all of which earned their spots for their fossil-fuel divestment policies.

During a recent conversation with Insurance Business, SIGWATCH founder and managing director, Robert Blood (pictured), discussed the role of insurance companies in sustainability and the impact that such rankings can have on top insurers. The ranking was compiled by SIGWATCH following its monitoring of over 6,600 campaigning actions over the previous year and Blood outlined how the organisation tracks what activists say about these companies every day, and so the results were in line with his expectations.

When it comes to insurance companies, he said, NGOs have a ‘follow the money’ strategy as they recognise the insurance sector as the lynchpin of fossil fuel development and the importance of insurance companies as institutional investors.

“They also recognise,” Blood said, “that unlike the… commercial sector or consumer goods sectors, instead of having a handful of companies which dominate the world market, you have hundreds of institutions. So it’s quite a difficult problem to tackle from their point of view, if you think about what they are trying to strategically do– changing one or two institutions is a very slow business when you have got 98 to deal with afterwards, and all in different countries.”

NGOs have undertaken a kind of ‘divide and rule’ strategy to manage this difficulty, he said, which involves positive reinforcement for institutions that adopt restrictive investment policies. They also call out the companies that are not responding to this pressure, he said, and are essentially playing off the “good” guys against the “bad” guys.

Looking to the impact of the SIGWATCH report, Blood said, whether or not such rankings make a difference to the behaviour of organisations is difficult to know but he does know that organisations absolutely notice when they make such a list. Blood noted that a third of SIGWATCH’s clients are financial institutions and that these businesses use and watch the organisation’s data for what is being said. This is not to say that they are highly sensitive to this, he said, but that they are inherently aware of how they appear and they don’t like being on the wrong side of the argument.

“You get a lot of tension within institutions from the ESG or CSR departments versus the commercial department,” he said, “and that is mostly why insurers have ended up on the most praised list. It’s not simply because they’re seen as the best companies in the world by the NGO movement, it is also because the NGO movement has high expectations of them and wants to create expectations of the institutions that they need to get out of fossil fuel financing.”

Blood has noticed the strategy of NGOs recently develop to target insurance companies not just due to their role as institutional investors but also on the basis of their day to day underwriting, and finds it striking that there has been such a time lag between these two points. In some ways going after an insurer’s underwriting role is more difficult as it is asking a lot more from the insurer, he said, but at the same time it is likely to have a much greater impact, and certainly a more immediate effect. 

Fossil fuel companies are not that reliant on external capital, he said, as they have so many different sources and the difficulties being faced by coal companies today are not due to financial institutions withdrawing capital. The leverage that institutional investors have over the industry when it comes to climate, Blood believes, is much greater not within the companies that produce fossil fuels so much as the ones that use them.

“Where a large tech company buys the power they need to run their data centres, where retailers get their power from, what businesses are doing on climate change when it comes to their carbon footprint and the use of plastics – these are all policy areas which also affect the day to day operations and profitability of businesses. That is where institutional investors, if they choose to do so, can actually be quite influential.”

Telling a coal company to reduce its exposure to coal is probably a waste of time, he said, and he thinks that activists have come to realise that the carbon divestment movement, which at first looked so promising, has not been very effective. It has created an ethical awareness, he said, but it has not achieved the dramatic change, that might have once been hoped for.

“There has been a lot of symbolic divestment but very little practical divestment,” Blood said. “[This does not mean] that divestment isn’t happening but it’s not making a practical difference. Whereas, if you persuade a major insurer to stop insuring oil and gas infrastructure or coal infrastructure then that is almost an existential threat to those operations.”

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