November 24, 2021 - Insurers play a critical role in tackling climate change – and it can help define the very existence of the coal industry in the next two decades, if not sooner. Not only are insurers among the largest institutional investors, their ability to opt out of insurance coverage can hinder a company’s operations.
Insurance companies also pay when climate change triggers natural disasters, which cost the industry $ 82 billion last year, according to insurer Munich Re.
French insurance company AXA has been actively leveraging its leverage to cut carbon emissions. In 2015, AXA became the first insurance company to move away from coal, and is now the chairman of the Net-Zero Insurance Alliance, a commitment signed by the world’s eight largest insurers and reinsurers that have pledged to have net-zero underwriting portfolios. greenhouse gas emissions by 2050.
Most of the signatories are European insurers. American insurers, including AIG and Berkshire Hathaway, disagreed with the terms. AXA CEO Thomas Buber has set himself the task of changing this.
You may have been the first to recognize the role of insurers in climate change. What prompted you to make your decision?
We addressed this whole issue of climate change transition very early on because you, as an insurer, essentially have two perspectives: you have an investment perspective, and you have an underwriting perspective. And in terms of underwriting, you will also see claims later. And what we saw from the very beginning was: yes, investments in coal, etc. do we insure against floods, fires, etc.? What happens to our patients with their health? The equation doesn’t work.
Why do you think underwriting is the key to displacing the coal industry?
Even if all insurers say, “We don’t invest in coal anymore,” even if all banks say, “We don’t invest in coal anymore,” there are still individuals who say, “I’ll give you money for coal.” Whereas from the insurance side, if you don’t have insurance, you won’t have funding – be it private, public, from an insurer, from an asset manager, etc.
And so we said, “Listen, bringing together most of this market, because [there’s] just let’s say 12-15 participants around the world who are engaged in this business – if we get together and agree on the principles of what to do, we still insure, and what we no longer insure – without violating any antitrust rules – we build a very powerful coalition to really crowd out this market.
There are several ways the government could intervene in this matter. The regulator can integrate capital charges for unsustainable investments. Or he can take a taxonomic approach to green activities like in the European Union. Should this happen or will it happen in the US?
Look at other areas such as diversity quotas. Why did they come? Because the companies didn’t do their job early enough. Be proactive and ensure that there is sufficient diversity in boards of directors, in their management teams, and so on. And so I always believe that you don’t need a government if you dealt with it yourself. Unfortunately, this is not always the case. But in this case, I think we are still early enough to figure it out ourselves.
You have personally met with the executives of major insurers to get them to sign the bond. When you talk to them, what worries them the most?
The question is, if I exclude clients, what does it mean for my relationship, what does it mean for my business. Since this is true, all the industries in question, on the insurance side, on the underwriting side, are very large clients.
When we stopped investing in coal, I had a whole speech from my investment team. “Are you out of your mind? You will never find an investment with the same return.” When I look now, five years later, we have committed more than $ 20 billion – now our goal is to go even further, to $ 24-25 billion – we channeled that money towards green investments. Yields are not that different from what we would see in the coal sector. So is the underwriting side. We had to give up a significant amount of business, no longer providing corporate use. But have you seen what -or a drop in our overall performance? No, no.
Will major insurance companies be underwriting coal in 20 years?
You don’t have to wait 20 years for this.
Will they disappear in five years?
No, but if you understand us: we have completely run out of coal in the OECD. [Organization for Economic Cooperation and Development] by 2030; and by 2040 non-OECD. I believe that in non-OECD countries too, the pressure is growing every day. So these dates are likely to be rescheduled. I would say that in 10 years you will be gone.