The following is an editorial by Alicja Grzadkowska, senior news editor at Insurance Business. To reach out to Alicja, email her at [email protected]
From coal mines to fossil fuels and oil sands, the insurance industry is facing increasing pressure from activists, the public, and its own employees to move away from industries whose activities are purportedly causing environmental harm. In fact, many major players have already taken steps to change their policies when it comes to controversial industries.
In October 2019, AXIS Capital Holdings Limited announced a new policy addressing underwriting and investments related to thermal coal and oil sands. With the new policy, as of January 01, AXIS is not providing new insurance or facultative reinsurance for the construction of new thermal coal plants or mines, oil-sands extraction and pipeline projects, and their dedicated infrastructure. AXIS will also not provide new insurance or facultative reinsurance to companies that generate 30% or more of their revenue from thermal coal mining, generate 30% or more of their power from thermal coal, or hold more than 20% of their reserves in oil sands.
Other insurance giants that have earned top marks for their environmentally-charged policies have included AXA, Allianz, Swiss Re, and SCOR, which all recently earned spots on the list of top 10 most praised companies by activist organizations for their fossil fuel divestment policies, according to global research and strategy consultancy SIGWATCH. On the other hand, brands with ties to fossil fuel exploration and extraction landed on the list of most criticized corporations.
However, not all companies are jumping onboard this train. Insurance broking giants, including Marsh, Aon, and Arthur J. Gallagher, have refused to rule out support for Adani Group’s Carmichael coal mine in Australia, despite growing opposition to the US$1.5 billion project among insurers and financial institutions, according to the Unfriend Coal campaign. The struggle recently resulted in reports that Marsh executives will now be discussing ending support for the Adani coal mine.
In this vein, the number of insurance companies that don’t move ahead with introducing some policies to divest from fossil fuel, coal, and oil sands businesses could soon be dwindling. The Unfriend Coal campaign reported that as of July 2019, 17 insurers had adopted a policy restricting their coverage of the coal industry and at least 25 insurers, with combined assets of more than $6 trillion, divested from coal.
With many companies already focusing on sustainability in their broader strategic planning, it seems that not putting their money where their mouth is will become more challenging, especially as fears around global warming and its impacts on our planet continue to grow. In the case of the Adani project, Stop Adani reported that coal burned from the Carmichael mine would produce 4.6 billion tonnes of CO2, which is more than eight times Australia’s annual emissions. Peter Bosshard, coordinator of the Unfriend Coal campaign, said, “Only the most reckless companies will touch the Adani coal mine at this point, and climate campaigners will relentlessly target Marsh’s reputation and mobilize shareholders at its upcoming AGM if the broker gives the project a new lease of life.”
When looking at the insurance industry more broadly, that reputation is already a cause for concern. In 2018, the Reputation Institute reported that the US insurance sector saw a reputational decline of 4.3 points, which was more than the average company decline for the year. One expert told Insurance Business that the bad reputation the industry has globally bothers him and he’s likely not the only one in the sector who feels this way.
But what matters most is the bottom line and even in this way, moving away from companies whose activities have negative impacts on the environment seems to be a logical step. Data and analytics company GlobalData has found that the insurance industry’s anti-coal stance will deliver significant long-term benefits despite potential short-term losses.
“On the surface, distancing itself from coal may have a significantly negative impact on the insurance industry, given the loss of business,” said Daniel Pearce, insurance analyst at GlobalData. “However, in addition to the possible progress in consumer perception, the industry may in fact enjoy a considerable financial benefit in the longer term as a result of any anti-coal stance.”
If the threat of remaining on the wrong side of history isn’t enough for insurance companies, perhaps the promise of a financial boost in the long run will convince them to change their approach to this issue.