Coal power plants with a capacity of more than 800 Gigawatt – 10 times the capacity of the whole British electricity system – are currently under construction or in the pipeline. A recent UNEP report has found that none of these plants can be built and existing coal capacity must be retired early if the world is to achieve the climate goals of the Paris Agreement.
Regulators, pressure groups and the media have realized that insurance companies need to play an active role in facilitating the transition from coal to clean energy technologies. Insurers have warned about the risks of climate change for more than 20 years. Globally, the insurance industry suffered $136 billion in losses from natural disasters in 2017, and the Bank of England’s Prudential Regulation Authority has warned about longer-term risks of climate chance to the insurance sector.
In spite of their self-interest in avoiding climate disasters, insurers continue to prop up coal and other fossil fuel industries. According to research by Profundo and Ceres, 55 large insurers in Europe and the U.S. have invested at least $590 billion in fossil fuel companies. Even more importantly, they also continue to offer the insurance coverage without which coal mines and power plants could not be built or operated.
Since 2015, far-sighted insurance companies have started to exit the coal and other fossil fuel sectors. According to research by the Unfriend Coal campaign, which I coordinate, at least 15 insurers have so far divested an estimated $20 billion from coal companies. Four insurers – AXA, SCOR, Zurich and Swiss Re – have also taken steps to stop underwriting coal projects or are about to do so.
Time to address the climate crisis is running out, and the shift of insurers away from coal needs to reach critical mass in 2018. Lloyd’s is currently preparing a coal exit strategy for the investments of its central fund, and needs to use the best-practice approaches of its leading peers as the benchmark for its policy. Lloyd’s also needs to take other measures to discourage the insurers which are using its market place from underwriting coal projects, for example by requiring higher capital loading for such projects.
US insurers and large European companies such as Generali, Hannover Re and Legal & General have so far not taken any steps to exit the coal sector. Others – notably Allianz and Munich Re – have divested from coal but are still underwriting coal operations in which they would no longer invest. Such inaction or half-hearted steps are no longer acceptable for institutions which are fully aware of the fundamental risks that climate change poses to our well-being.
In a recent editorial, the Financial Times has called the shift of responsible insurance companies away from coal a “welcome and logical development”. “Any responsible government should be aiming to phase out coal as swiftly as possible, especially given the rapidly falling costs of cleaner alternatives”, the business paper noted. Likewise, “many insurers have already stopped investing in coal. It makes little sense to adopt a policy of disinvestment unless underwriting practices also change.”
The position of the Financial Times indicates that growing public audiences no longer accept institutions which are supposed to keep us safe but invest in and enable the destruction of our climate. The insurance industry can take pride in having underwritten the development of our industrial society. Yet we can no longer afford building new coal power plants, and insurers need to pull the plug on coal now.
Peter Bosshard directs the Finance Program of the Sunrise Project and coordinates the Unfriend Coal campaign.