Dark smoke billowing across the Richard Rogers-designed Lloyd’s of London headquarters and the banner unfurled by climate protesters last week provided a visible reminder of the political war over the role of the insurance industry in global warming.
On the same day in New York, another campaign group was pushing in the opposite direction, with the “anti-woke” group called Consumers’ Research targeting the offices of European insurers with a mobile billboard.
It demanded the companies pull out of the Net-Zero Insurance Alliance (NZIA), a UN-convened body set up two years ago for insurers wanting to cut their carbon footprint and reduce climate change risk. The rightwing pressure group claimed these efforts to scale back insurance cover for fossil fuel projects were anti-competitive. “Call off the collusion,” it blared.
On the latest front in the environmental, social and governance battles testing all corporations, it was the anti-ESG forces that carried the day.
Lloyd’s joined a string of big European insurers, as well as a major Japanese and an Australian reinsurer, to quit the alliance by the end of the week, throwing it into disarray.
A letter from US attorneys-general sent to the insurance groups this month raised “serious concerns” over whether the alliance was at odds with antitrust laws. This was a key catalyst for the departures, according to people briefed on the decisions to withdraw at two insurers.
“It’s a real shame that the NZIA looks as if it is in the process of collapsing. That shouldn’t be the reality,” Lindsay Keenan, European co-ordinator at campaign group Insure Our Future, said. “Any sensible person knows that collective action is required to solve the climate crisis.”
But Washington-based Consumers’ Research executive director Will Hild aims to keep up the pressure, claiming the alliance was part of a wider “ESG scam”. “We’re going to be pushing back on the entire conspiracy to enforce environmental policy through corporate collusion rather than the democratic process,” he said. “It won’t be a full victory until NZIA no longer exists.”
Some experts said the exits from the insurers’ alliance could undermine other industry coalitions and pledges by the wider financial sector to cut emissions. A trickle of banks and asset managers have quit other key climate alliances in recent months because of the ESG backlash.
“It would be naive to suggest there’s no risk of contagion [to other climate alliances],” said Simon Holmes, a member of the UK Competition Appeal Tribunal and visiting law professor at the University of Oxford. “One person gets cold feet, the next does as well . . . everybody loses from this.”
He added that while it was possible to characterise withdrawing insurance cover from fossil fuels projects as anti-competitive “in a narrow sense”, there was a strong case that coalitions such as the NZIA met the conditions to be exempt from these laws, on the grounds of a wider consumer benefit.
The anti-ESG campaigners’ “bigger victory”, said Jakob Thomä, co-founder of a non-profit think-tank, the 2 Degrees Investing Initiative, was in casting a cloud. “It adds transaction costs,” he said. “People will know to cross their t’s three times, four times, to try to protect themselves from being caught in the crosshairs of the anti-ESG movement.”
The attacks were also a sign that net zero policies were starting to become a “pain point” for fossil fuel industries, Thomä added.
The insurance initiative was one part of the broad umbrella group, the Glasgow Financial Alliance for Net Zero, set up by former Bank of England governor Mark Carney ahead of the UN climate summit held in 2021.
It warned on Friday that the “political attacks are now interfering with insurers’ independent efforts to price climate risk, which will harm policyholders, main street investors and local economies”.
The NZIA faced criticism from the start — but more frequently that its collective action was too weak, rather than too strong. Climate campaigners questioned why a policy banning the insurance of coal projects was not a condition for entry. At the time, the NZIA’s leadership cited “antitrust issues”.
Even with what many climate activists saw as a low bar to membership, it failed to attract US insurers as members. Soon after its launch, the secretary-general of the public-private Insurance Development Forum said it was uncertain that the industry could “make much progress” without the backing of the vast US insurance sector.
At the same time, industry intentions to reduce their underwriting exposure to climate risk have come up against arguments about energy security and the impact on coal-dependent economies.
“Enabling the transition, I think, is a more productive outcome for society than shutting off the lights,” Carl Hess, chief executive of major insurance brokerage Willis Towers Watson, said last year.
Lloyd’s of London, which had set a goal to end new insurance for the dirtiest projects of thermal coal and oil sands, as well as Arctic drilling, from the start of last year, also then appeared to row back. It said it was “not mandating” the exclusion of these policies, saying it was down to individual companies in the market to make their own underwriting decisions.
Those insurers now departing the net zero alliance are still largely expected to continue to disclose the greenhouse gas emissions associated with their underwriting, in the framework provided by the Partnership for Carbon Accounting Financials.
At a company level, some insurers are stepping up their exclusions for clients that do not bring their business in line with climate goals.
The property and casualty insurer called If, part of Nordic group Sampo, began screening its corporate customers for ESG criteria in 2021. Out of more than 600 clients, 19 were found to have fallen short of sustainability standards, it said. For two clients with a bad record of pollution, it plans to decline insurance at the next renewal, while others are on watch.
Chief executive Morten Thorsrud said it was “happy to help [clients] by nudging them towards a more sustainable strategy and operations”.
US insurers are also taking steps to reduce their risk individually. New York-listed Chubb, a leading energy insurer, announced new underwriting criteria that would require clients to reduce their emissions of methane, the largest component of gas and a significant contributor to global warming.
Insurers will continue to be dragged in both directions. A report from Greenpeace Nordic this week said 69 insurers, including Lloyd’s companies, still cover groups planning new oil and gasfields in Norway.
At the same time, anti-ESG campaigners are expected to intensify criticism of climate plans during a divisive US presidential election campaign in the year ahead.
“This is a distraction, but we stay the course,” said Curtis Ravenel, a senior adviser to Gfanz. The private sector could only “go so far”, he added, with government intervention to provide rules and standards needed to “truly catalyse climate action”.
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