In January 2022, The World Economic Forum released its Annual Global Risks Report, which highlights some of the major risks that policymakers and businesses are concerned about. This year was dominated by one risk above all: climate risk.
Respondents were asked to “identify the most severe risks on a global scale over the next 10 years, and number one was “Climate Action Failure”. “Environmental risks dominated the top three risks, with “Extreme Weather” and “Biodiversity loss” making up the other two, coming in at numbers two and three respectively
All of this comes as the world leaders descend on Egypt for COP27, trying to build on the success of COP26 at Glasgow, which saw 197 countries sign the Glasgow Climate Pact.
One commitment that has lived on since Glasgow, was the Glasgow Financial Alliance for Net Zero, which represents 450 global firms and financial institutions with $130 trillion at their disposal and accounting for 40% of the world’s capital.
Insurers, which are a part of this group, will play a role in helping to manage this transition to a sustainable future. Without insurance, it is impossible to get finance for any project, which has major implications, particularly when it comes to fossil fuels.
“Insurance is the Achille’s heel of the fossil fuel industry. Without it, no new fossil fuel projects will go forward, and many existing operations will have to cease,” says Peter Bosshard, global coordinator of Insure Our Future Campaign, speaking to Reuters.
Last month, US insurers AIG and Travelers committed to coal exclusion policies, bringing the total number of coal insurance exit policies to 41, according to Insure Our Future, a climate campaign group.
62% of the reinsurance market and 39% of the primary insurance market have coal exclusion policies, according to the Guardian.
Munich Re, announced in a recent press statement, that as of April 2023, it will no longer invest or insure contracts/projects exclusively covering the planning, financing, construction of:
new oil and gas fields, where, as at 31 December 2022, no prior production has taken place or
new midstream infrastructure related to oil, which have not yet been under construction or operation as at 31 December 2022 and
new oil-fired power plants, which have not yet been under construction or operation as at 31 December 2022
Reuters also reported that Swiss Re, Hannover Re and Allianz have joined Munich in exiting the sector too. Therefore, it could now be argued that a third of the reinsurance market is now covered by oil and gas exclusions according to The Guardian.
This isn’t without criticism, as The Guardian points out. Lloyd’s of London has come under fire from many groups, as being one of the few remaining European insurers without an oil and gas exclusion.
Previously, Lloyd’s was criticised for its 2020 coal exit policy, which made it non-mandatory guideline for its members.
Furthermore, there is wider business recognition of insurer moves to exit coal, with Societe Generale introducing a “green premium” to insurer valuations, to recognise their efforts to exit coal insurance.
Speaking to Reuters, the company was quite clear on the road ahead, stating:
“We think that as they now begin starting to reduce insurance cover to the oil and gas industry, insurers will also have as important an impact as they are having on coal.”
With much of the news coverage bound to be dominated by the statements and agreements at COP27, it is quite newsworthy that some sectors, like insurers have already taken matters into their own hands and are quietly bringing about a greener future.