Peter Bosshard, the global coordinator of the Insure Our Future campaign spells out what insurers need to do in 2022 to play its part in the fight against climate change.
“In my position I hear a lot of good intentions”, Patricia Espinoza, the Executive Secretary of the UNFCCC, told insurance CEOs before COP26 in Glasgow. “What I would dearly like to see more of is solid, measurable actions backing those words.”
At several events at COP26, insurance companies expressed their commitment to a net-zero pathway limiting global warming to 1.5˚C. But what are the solid, measurable actions these insurers need to undertake in 2022 to align with this pathway?
The Net-Zero Insurance Alliance is currently working to prepare a protocol for measuring insured carbon emissions across business sectors. It will follow up with a separate protocol for setting targets to reduce these emissions in line with a 1.5˚C pathway. Such protocols are needed, but they won’t take effect before 2024. Climate scientists are telling us that we need to halve carbon emissions by 2030, and so we can’t delay taking action for another two years.
Some steps in the low-carbon transition may require detailed protocols, but others are simple and clear-cut. The International Energy Agency has found that if we are to prevent a rise above 1.5°C, we can’t build any new oil or gas projects and need to phase out existing fossil fuel production over time. Like it has largely done for coal, the insurance industry needs to stop underwriting new oil and gas projects in 2022.
The oil and gas industry offers a bigger revenue stream than coal, and most insurance companies have so far shied away from excluding cover for the industry’s expansion projects. They have instead pledged to engage their oil and gas clients in a dialogue towards a low-carbon transition. Yet it is difficult to detect any tangible impacts from this engagement process.
Six years after the Paris Agreement, more than 95% of oil and gas companies still have plans to expand their production. In 2022, insurance companies need to show that their engagement process with oil and gas clients produces solid, measurable impacts in line with a 1.5˚C pathway, or stop underwriting oil and gas expansion projects.
While we need to shift away from oil and gas, we still need to phase out the production of coal – the dirtiest of all fossil fuels, which COP26 was supposed to assign to history. At least 35 insurance companies have ended their support for new coal projects, but laggards like AIG, Convex, Sompo and the Lloyd’s market have not. And even major European insurers continue to underwrite the ongoing operations of coal companies which have no phase-out plans. All insurance companies need to stop insuring new coal and align their cover of existing coal operations with a 1.5˚C pathway in 2022, or they will face a growing backlash from investors, civil society and prospective employees.
Reinsurance companies are most exposed to the rising costs of climate disasters, and they are in a powerful position to accelerate the shift away from coal. Swiss Re and SCOR have committed to phase out coal not just from their facultative but also their treaty business. In 2022, Munich Re, Hannover Re and the other major reinsurers need to follow suit.
“I encourage you to only underwrite those portfolios that are consistent with the goals of the Paris Agreement”, the UNFCCC’s Patricia Espinoza told the insurance CEOs as they prepared for COP26. In 2022, these CEOs need to turn their good intentions into solid, measurable actions to accelerate the shift away from fossil fuels.