In recent months there has been an orchestrated backlash against investors and insurers who integrate the risks of climate change into their business models. This backlash – coming from Republican-led states – is impacting the way companies speak publicly. But whether this will impact their efforts to respond to climate change is less clear.
The latest targets are global insurance companies, and their responses offer some insight.
Several major insurers are under pressure, including AXA, Allianz, Lloyds And Swiss Re, have withdrawn from a United Nations-organized alliance committed to a global goal of net-zero emissions by mid-century. There is a word for companies that remain silent in the face of orchestrated attacks: “evergreen.”
But while the insurers’ departure from the alliance may seem like a victory for politicians and political donors who want to delay action on climate change, the companies say the departure does not change their business decisions.
I have worked with companies all over the world on sustainable development over 20 years and follow what they say as well as what they do. The insurance industry has clear reasons to be concerned about climate change and efforts to slow it, starting with the fact that disasters are costing them money and risks are increasing.
The attack on climate protection
Republicans started aimed at ESG investors – those who take environmental, social and governance performance standards into account when making investment decisions – a few years ago too ESG-managed assets grew in the tens of trillions of dollars. Texas led the way in 2021 with a law banning state entities from investing with companies that are reducing their investments in the fossil fuel industry.
In 2022, Republican attorneys general began going after the president Glasgow Financial Alliance for Net Zero, or GFANZ, an umbrella body for insurers, banks, asset owners and asset managers. From the start, the influential group had more than 400 financial institutions representing more than $130 trillion in assets under management.
One line of attack accuses GFANZ members violating antitrust rulesclaiming that when companies join groups committed to reducing greenhouse gas emissions, competitors cooperate in ways that affect prices, which violates U.S. law.
“Net-zero” is shorthand for taking steps to limit global warming to 1.5 degrees Celsius, an international goal to prevent increasingly severe climate damage that causes severe storms. heat and forest fires. Clubs have formed across the financial value chain to find solutions. Among them is the UN convened Net Zero Insurance Alliance (NZIA), a group of some of the world’s leading insurers and reinsurers. Members commit to transition their insurance and reinsurance portfolios to net zero greenhouse gas emissions by 2050.
In a letter dated May 15, 2023 23 Republican attorneys general took it a step further and tried to blame the insurance alliance – rather than the rising costs of disasters like wildfires and hurricanes – for the economic problems caused by rising insurance premiums, fuel prices and inflation.
Faced with the threat of lawsuits, whether viable or not, and the chance of reputational damage, several insurers and reinsurers mainly based in Europe with substantial investments in the US left the group.
The attacks have dampened public discussion about changing practices around net-zero pathways and ESG investing, even for those who remain. Fewer companies are eager to draw attention to their progress because, in a global marketplace, the US backlash threatens them all.
GFANZ has stated that the “political attacks are now hindering the independent efforts of insurers to price climate risk, which will hurt policyholders, major investors and local economies.”
Silencing climate voices, but no actions
While insurers may not be speaking out, their assessment of climate trends has not changed, nor has the impact of those trends on their business.
When Lloyd’s withdrew from the alliance at the end of May 2023, the London-based insurance and reinsurance company made clear that it “remains committed to delivering on our sustainability strategy, including supporting the transition of the global economy.” It said it stays support that of the UN Principles for Sustainable Insurance And Sustainable Development Goals.
Swiss Re also stressed that it has kept its sustainability strategy the same and that its withdrawal does not reflect a lesser commitment to climate policy. It remains a member of the Net Zero Asset Owner Alliance.
Swiss Re Group’s data clearly shows the reason why. Some in 2021 $270 billion in losses were due to natural disasters worldwide. The $111 billion in insured losses represented the fourth-highest payout since the Swiss Re Institute, the insurer’s research arm, began keeping records in 1970.
The World Meteorological Organization reports that weather and climate disasters such as floods, heat waves and forest fires have occurred fivefold in the past fifty years. These disasters have caused environmental damage and loss more than 2 million lives and more than $3.64 trillion in economic damages.
Not talking about these risks doesn’t help homeowners and businesses who rely on insurance and do nothing to stop climate change worsens the threats. Some consultants and auditors have begun to sound the alarm that more and more natural disasters could occur the insurance market model collapses we know today.
An economic problem
The insurance sector plays a crucial role in the overall functioning of economies. It promotes resilience by providing a safety net against unexpected events, allowing individuals and companies to recover faster. It facilitates trade and commerce; For example, maritime insurance covers the risks of shipping goods and ensures that trade flows smoothly. It also encourages risk management practices.
Without insurance, the costs of disasters would weigh heavily on individuals and businesses, hindering economic growth and stability.
As climate risks increase, some regions are already becoming increasingly uninsurable. State Farm and Allstate cited wildfire risks when they recently announced they would stop selling new home insurance policies in California, putting pressure on outdated regulation of the insurance industry.
As the United States heads into a long election season, the ESG backlash threatens to push more companies’ transition paths into the quiet zone and delay much-needed regulation.
Insurers have the ability to accelerate the transition through their underwriting practices and by promoting risk mitigation through their substantial investment portfolios. They also recognize that, to protect their balance sheets and for the sake of the planet, society must accelerate the pace of the transition to net zero.