Insurers Weigh Conflicting Climate Pressures

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The exit of a couple of leading insurance groups from the Net-Zero Insurance Alliance (NZIA) highlights the sometimes conflicting pressures faced by the sector as it seeks to navigate climate demands and an increasingly fractious landscape in the US — where a cultural war has broken out over environmental, social and governance (ESG) criteria. But despite US politics and the energy crisis, insurers are still adopting stricter policies on fossil fuels — some with sweeping net-zero pledges, others with more modest commitments. Antitrust concerns have also been raised over collective commitments to phase out fossil fuels, which regulators and governments will need to address.

Switzerland's Zurich Insurance Group recently became the second member to leave the NZIA, just a few days after Germany's Munich Re. More than anything else, this may show how US politics — and the cultural war over ESG criteria — can influence international business, according to Mary Sweeters, senior strategist at activist nonprofit Insure Our Future. But US politics and the wider energy crisis are unlikely to curb the slow but steady trend among insurers to adopt stricter policies on fossil fuels, Sweeters believes. She notes that in the past year — after the war in Ukraine broke out — 10 new companies have issued policies regarding oil and gas insurance. Also, both Munich Re and Zurich are remaining part of the Net-Zero Asset Owner Alliance; insurers are huge asset owners.

Swiss Re, Germany's Allianz and Munich Re said they will generally exclude exploration and development of new oil and gas fields, but will admit exceptions for gas. Allianz may, for example, insure a new gas field "in case a government decides on [its] development for energy security emergency reasons." Likewise, Swiss Re will "make exceptions for projects of companies that are fully aligned with net-zero emissions by 2050, as defined by the SBTi [Science Based Targets initiative] or a comparable third-party assessment."

France's Axa, a major oil and gas insurer, is reducing its investment and insurance exposure to oil sands, the Arctic and shale oil and gas. More generally, it will exclude conventional greenfield oil — but not gas — exploration projects from its underwriting business "unless they are carried out by companies with the most far-reaching and credible transition plans." Zurich's policy is similar.

The UK's Aviva, Bermuda's Fidelis, Italy's Generali, Germany's Hannover Re, Belgium's KBC and Australia's Suncorp have also adopted relatively strong policies, but are not major oil and gas players, Insure Our Future notes in a recent report ranking insurers on climate commitments. In contrast, the US' AIG and Chubb, the UK's Lloyd's and Japan's Tokio Marine, which are strong in oil and gas insurance, have not yet adopted any significant restrictions on conventional oil and gas companies or projects.

Restricting Oil and Gas Insurance
CompanyCountryPremiumsArcticOil SandsOil and Gas
  ($ billion)(x = upholds a restriction or exclusion policy)
Munich ReGermany65xxx
Swiss ReSwitzerland43xxx
Tokio MarineJapan39xx--
Hannover ReGermany37xxx
The HartfordUS10--x--
Axis CapitalBermuda5xx--
Hiscox GroupBermuda4xx--

Chubb announced last month that insurance coverage for oil and gas extraction projects would be "contingent on client adoption of evidence-based plans to reduce methane emissions." This is aimed at finding "the balance between the need to transition to a low-carbon economy and society's need for energy security," said CEO Evan Greenberg. He rejects "committing to sweeping net-zero pledges for which, in our judgment, there is not a viable path to achieve." Chubb's modest commitment and the lack of any oil and gas policy by most US insurers — except, in a few cases, for limited unconventional segments — illustrate the widening trans-Atlantic gap on climate and ESG, says Sweeters.

Munich Re discontinued its NZIA membership because the alliance's collective approach involves antitrust risk, said CEO Joachim Wenning. It is therefore "more effective to pursue our climate ambition to reduce global warming individually," he emphasized. "Munich Re is sticking to its ambitious climate targets," the company wrote in its NZIA exit announcement. As of this month, it will not insure projects involving new oil and gas fields or new midstream oil infrastructure. It will also reduce oil- and gas-related insured Scope 1, 2 and 3 emissions by 5% over 2019-25. In addition, it will cut greenhouse gas emissions related to its investment portfolio by 29% over the same period.

Antitrust Worries

Antitrust worries have also been recently expressed by US banks as they fear being sued over collective commitments to phase out fossil fuels. The issue relates to updated guidelines released in June last year by the UN Race to Zero campaign, which make explicit the obligation for signatories to restrict fossil fuel financing, and whether those should become part of NZIA and sister alliances under the Glasgow Financial Alliance for Net Zero. With this in mind, NZIA issued a statement insisting the framework it provides allows members “to make independent decisions to establish their own individual net-zero pathways.” NZIA was launched in 2021 at the G20 climate summit in Italy and, until the Zurich and Munich Re announcements, had grown to 29 insurers and reinsurers representing about 15% of global premiums.

Regulators and governments need to step in to clear antitrust fears, nonprofit Reclaim Finance's Ariel Le Bourdonnec tells Energy Intelligence. Indeed, the UK's Competition and Markets Authority said it will ease restrictions on how closely businesses can cooperate on climate action. As environmental sustainability is a "major public concern," antitrust law enforcement should not "unnecessarily or erroneously deter" businesses from collaborating to address the challenges posed by climate change, it wrote in a draft guidance published in February. The European Commission and Japan's Fair Trade Commission have disclosed similar guidelines.

By contrast, the legal landscape remains "uncertain" in the US, law firm Gibson Dunn wrote in a recent opinion paper. Neither the Federal Trade Commission nor the Department of Justice's antitrust division have issued guidance on sustainability agreements, and several state attorneys general have expressed contradicting opinions on the subject.

Philippe Roos is a senior reporter and senior analyst at Energy Intelligence. A version of this article originally ran in EI New Energy.

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