Global insurers are testing the limits of United Nations-backed green bodies. Back in March the Net-Zero Insurance Alliance (NZIA) boasted 30 members, representing about 15% of global premium volume. Now the NZIA, a key financial forum for insurers to set decarbonisation targets and a part of the Glasgow Financial Alliance for Net Zero (GFANZ), has shrunk to just 13 companies.
On the face of it, insurers are jumping ship because of the United States. A group of Republican state attorneys general have accused joint decarbonisation commitments made by GFANZ, which also encompasses the Net-Zero Banking Alliance (NZBA) and the Net Zero Asset Owner Alliance, of potentially breaching U.S. antitrust laws. That’s a particularly big deal for insurers, given the sector is regulated at state level. Even those who choose to stay in the NZIA risk losing business due to state politicians pursuing a “war on woke”.
But U.S. exceptionalism is far from the whole story. While the European Union has vowed to ditch Russian oil and gas by 2027 and replaced around two-thirds of Russian gas last year, the 2022 energy security crisis means domestic politicians are far more focused on fossil fuels from other sources. Countries like Germany are boosting their reliance on coal to power their economies. Last year, coal-generated electricity in Europe’s biggest economy rose 8.4%, with the dirty fuel accounting for one-third of the country’s electricity production in 2022, according to Germany’s federal statistical office Destatis.
This shift is important. Regardless of whatever their flowery corporate statements say, financial groups would rather do without new decarbonisation targets like the ones unveiled by the NZIA in January, because they make managers’ lives harder. The main reason European groups embraced them more than their transatlantic peers is buy-in from European politicians committed to goals like slashing EU emissions by 55% by 2030. Now the political pressure, if anything, is for insurers to keep coal companies as clients rather than ditch them.
So far, non-insurance financial groups are broadly sticking with GFANZ. But that’s partly because it has become easier to do so. Last year the umbrella body had to drop a requirement for its members to sign up to the so-called Race to Zero campaign. Had it not distanced itself from proposals like a requirement to curb new fossil fuel projects, the NZBA might have seen the same sort of exodus as the NZIA. So long as politicians on both sides of the Atlantic are distracted by energy security concerns, grand-sounding climate alliances will look increasingly pointless.
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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
CONTEXT NEWS
Canadian insurer Beneva became the latest company to exit the Net-Zero Insurance Alliance (NZIA) on June 15, saying the growing political debate concerning ESG criteria in the United States was a “distraction from the actions around which the company wishes to rally”.
Zurich Insurance said on April 5 that it was withdrawing from NZIA, becoming the second founding member after Munich Re to quit the climate group in less than a week. On April 19 Hannover Re announced its plans to drop out. NZIA, part of the Glasgow Financial Alliance for Net Zero set up by U.N. climate envoy Mark Carney, requires members to commit to reducing their greenhouse gas emissions.
Allianz, Axa and French reinsurer Scor announced their departure from NZIA on May 25. In rapid succession Japanese insurers Sompo Holdings, MS&AD and Tokio Marine as well as Australia’s QBE Insurance quit the net-zero alliance in late May.
Lloyd’s of London CEO John Neal told Reuters on May 24 that NZIA needed to make its membership rules less prescriptive or it would risk falling apart. The British insurer quit the alliance on May 26.
