Insurance Industry Limits Exposure to Fossil Fuels Amid Growing Climate Threat
With global climate change threatening to wreak havoc on your industry, insurance companies are increasingly looking to limit their exposure to the fossil fuel sector.
“This was not a central issue in the insurance industry, not even 7 years ago,” said Robin Edger, national climate change director for the Insurance Canada Bureau. “But now it moves at the speed of light.”
In the past three years, 23 major global insurance companies have adopted policies that terminate or limit insurance for the coal industry, and nine insurers terminated or limited insurance for Canadian oil sands.
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Other insurance companies are making changes to the asset side of their books, divesting fossil fuel investments and adding green energy to their investment portfolios. In July, eight of the world’s largest insurance companies, including Swiss Re, Zurich Insurance Group and Aviva, committed to transitioning their portfolios to net zero greenhouse gas emissions by 2050.
The “sustainable finance” movement, which seeks to use the power of investment capital to move towards a low-carbon economy, also includes pension funds, banks and mutual funds. But of all institutional investors, insurance companies are perhaps the most at stake when it comes to climate change.
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According to the Insurance Bureau of Canada, the average annual cost of claims for property damage or loss due to severe weather has more than quadrupled over the past decade to $ 2.4 billion in 2020. That number is expected to continue to grow. . An alarming report from the United Nations earlier this month said the world will cross the 1.5 degree Celsius warming mark in the 2030s, resulting in more floods, fires and heat waves.
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Expecting more payments amid increasing risk, the global insurance industry has been pushing for years for governments to take more action on climate change. But it is only recently that insurers have begun to critically analyze their own investments in fossil fuel companies.
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In Europe, where disclosure of fossil fuel investments is mandatory for public companies, insurers are moving faster than their North American counterparts, said Victor Adesanya, lead author of a recent DBRS Morningstar report on the subject.
But even in the US and Canada, where disclosure of fossil fuel stocks is not required, the problem is gaining momentum, Adesanya said. Manulife Financial, for example, has committed to evaluating its own $ 411 billion portfolio with a goal of reaching net zero by 2050.
“For them (the US insurers) to just turn off the taps and stop investing immediately, I don’t see that happening,” Adesanya said.
“But there is a trend that has started and will start to increase.”
Environmental groups are also putting increasing pressure on the insurance industry, demanding that they stop underwriting coal mines, coal-fired power plants and other fossil fuel projects. They have had some success: A handful of global insurers publicly stated this year that they would not cover the TransMountain pipeline expansion.
“For me, it illustrates a real change in the industry,” said Mary Lovell, who leads insurance campaigns for the San Francisco-based environmental group Rainforest Action Network. “These insurers understand the reputational risk of participating in such a controversial project as TransMountain, as well as the material risk of building a new pipeline during a climate crisis.”
Edger from Canada’s Insurance Bureau said the industry will closely follow the UN Climate Summit at COP 26 in Glasgow in November, where the issue of sustainable finance is expected to be a major topic.
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