Insurance firms labor over climate approach
The campaign to stop the proliferation of coal plants may come down to a bit of financial engineering: pulling the plug on insurance coverage.
More than 30 insurance companies have announced restrictions on underwriting coal projects, making it difficult for major coal operators to line up bank financing and investment for mines, transportation and power plants. Without insurance, those investments could seen too risky.
Thomas Buberi, chief executive of AXA, the giant French underwriting firm, is leading a coalition of eight major insurers called the Net Zero Insurance Alliance. The goal, he said in an interview, is to have “all the insurers applying a methodology to only underwrite companies directed toward climate transition and not to the dark ages of burning coal.”
If that sounds like corporate activism, it’s because many corporate executives are trying to use their financial clout to achieve what other activists have had trouble achieving through regulation or negotiation at events such as next week’s climate summit, COP26, in Glasgow. And many activists who have had trouble rallying governments are looking to the private sector for reinforcements. “Insurers are also major investors,” said the activist group Insure Our Future on its website. “US insurers have $582 billion invested in fossil fuels, with almost $90 billion invested in coal.”
While most European insurers have ended or limited the coverage they provide to coal projects, many of the biggest names in the U.S. insurance business — including AIG, Berkshire Hathaway and Travelers — have not. Mr. Buberi said that another major insurer, Japan’s Tokio Marine, also continues to do business with fossil fuel companies.
“Climate change is a complex issue and the world cannot currently meet its energy needs through purely green technologies,” AIG said in a June 2021 report. “We do not feel it would be in the best interest of our stakeholders and the general public, which expects reliable access to energy, to abruptly reduce or stop insurance access to clients that are heavy users or producers of fossil fuels.”
Only a few insurance firms are big enough to provide coverage for costly coal, oil or natural gas projects.
“Without insurance there is no financing,” Mr. Buberi said. “If you get the majority of the market together to align on principles of insuring in a climate-friendly way, it will have an even bigger effect on financing.” He said he
has invited insurers who have not joined the alliance to sit in and listen at meetings.
Coal companies are already feeling the pinch.
“Increasingly, both foreign and domestic banks, insurance companies and large investors are curtailing or ending their financial relationships with fossil fuel-related companies,” Peabody Energy said in its annual report. “This has had adverse impacts on the liquidity and operations of coal producers.”
Insure Our Future estimates that coal companies face insurance rate increases of up to 40%.
“Insurance and financial institutions need to recognize the essential role coal continues to play in providing affordable and reliable electricity around the world, as well as in providing the metallurgical coal needed for steel,” National Mining Association spokesperson Ashley Burke
said in an email. Citing high fuel prices in Europe, she said, “you will see why fuel targeting doesn’t work and why vilifying the fuels required to keep the lights on is counterproductive.”
But insurers who haven’t joined the Net Zero Insurance Alliance are also feeling pressure. Many experts point out that coal assets could be “stranded,” meaning they would be unable to be put to constructive use before a new era puts an end to demand for their products.
On March 24, Sens. Sheldon Whitehouse, D-R.I.; Jeff Merkley, D-Ore.; Elizabeth Warren, D-Mass.; and Chris Van Hollen, D-Md., wrote to Chubb’s chief executive Evan Greenberg urging him to curtail coverage of coal companies. “It goes without saying that the physical risks of climate change pose a serious threat to insurers, both on your assets side and on your claims side,” they wrote.
Later, activists brought a 15-foot-high inflatable torso of Mr. Greenberg, surrounded by flames, to the U.S. Open tennis tournament, which Chubb co-sponsors.
Then, in September, Chubb, which has long resisted pressure to cut back its insurance and investments in fossil fuels, became the 16th insurer to drop its policy for the Trans Mountain Pipeline, which carries crude and refined products out from the oil sands in Alberta.
It remains unclear how much further Chubb is interested in going, but the underwriter already avoids buying new debt or equity investments in companies that generate more than 30% of their revenue from thermal coal mining or energy production from coal. Chubb also no longer underwrites the construction and operation of new coal-fired plants for companies that generate more than 30% of their revenue from coal production. Insurance coverage for existing coal plants that exceed this threshold will be phased out by 2022, the company said.