Nearly half the members of the Net Zero Insurers Alliance (NZIA) have pulled out of the global insurance network for addressing climate change. Many reports cite the pressure of the growing politicisation of ESG, especially in the US, but the news also fits the growing awareness that targeting, and achieving, net zero is going to be a lot harder than simply making a commitment.
- Insurers withdraw en-mass from NZIA, highlighting the challenges of financing the net zero transition in a politicised environment.
- Commentators believe that the withdrawals are concerned about potential anti-trust action, or even simply the fear of loss of business in the US.
- The UN says there is a ‘fundamental and urgent need’ for collaboration with the global insurance industry if net zero goals are to be met.
There is no question that the insurance industry has a critical role to play in the realignment of capital and the net zero transition – for the very simple reason that if a project cannot get insurance, it will not get investment approval.
There has been a groundswell of activists holding insurers to account in planning new oil and gas extraction – especially when the IPCC research says that net zero requires no new oil and gas projects being greenlighted. As it stands today, the trajectory of oil and gas production is currently misaligned with global climate goals, as today 95% of companies in the sector continue to have expansion plans.
NGO Insure Our Future asked in April 2023 that insurers immediately stop offering any insurance services which support the expansion of coal, oil and gas production and within two years phase out all insurance services for fossil fuel companies which are not aligned with a credible 1.5ºC pathway. It also calls for immediate divestment of all assets, including assets managed for third parties, from those same companies.
US anti-ESG movement is targeting insurers
At the same time, however, there is a growing pressure in the US to halt the collaborative action that is the hallmark of the UN alliance. In May 2023 23 US attorney generals sent a letter to the NZIA warning that they were “concerned with the legality of your commitments to collaborate with other insurers and asset owners in order to advance an activist climate agenda”.
One of the purposes of joining an alliance such as the NZIA is to make clear that there is a voluntary commitment to better understand, prevent, and reduce environmental, social and governance (ESG) risks in the insurance business; and to better manage opportunities to provide quality and reliable risk protection. The underlying Principles also promote accountability and transparency in doing so. That means understanding the implications of threat multipliers such as climate change, biodiversity loss and the degradation of natural ecosystems.
The difficulty in making those commitments is that actioning them is complex and challenging – and can result in increased costs. Many market leaders made grandiose pledges that they are currently struggling to meet. Companies are changing their targets and transition deadlines, while finance companies are struggling with the implications of change.
The US letter also said that: “The push to force insurance companies and their clients to rapidly reduce their emissions has led not only to increased insurance costs, but also to high gas prices and higher costs for products and services across the board, resulting in record-breaking inflation and financial hardships for the residents of our states.” The problem is that no one seems to be prepared to have the hard conversations about how difficult the transition is going to be, especially in the current cost of living and inflation crisis, and how hard change is likely to bite.
There have been rumblings for some time that members were concerned that the rules for members were too prescriptive. While the commitments under the January 2023 Target Setting Protocol are non-binding, the idea is that members must comply or explain – something the US AGs found unacceptable.
Interestingly Canadian insurer Beneva just joined the NZIA in April 2023, when its president and chief executive Jean-François Chalifoux said: “By joining the UN’s Principles for Sustainable Insurance Initiative and Net-Zero Insurance Alliance, we proudly contribute to building a better tomorrow for generations to come. The accomplishments stemming from the important work of the PSI and NZIA will not only benefit our members, clients and partners, but they will also be shared with the society.”
At the time, UNEP said: “The addition of the first North American member of the NZIA is a landmark step in advancing insurance thinking and practices to support the net-zero transition globally.” As ever, the problem seems to be who is prepared to share the burdens of transition.
What is the NZIA?
The NZIA was initiated and convened by the United Nations in association with the Glasgow Financial Alliance for Net Zero and under the auspices of the UNEP’s Principles for Sustainable Insurance Initiative (PSI). It was launched at the G20 Climate Summit in July 2021 to speed up and scale up action to support the transition to a net-zero economy and tackle the climate emergency. The founding members were eight insurance and reinsurance companies including AXA (PAR:CS), Allianz (ETR:ALV) and Scor (EPA:SCR). By early 2023, it had expanded to nearly 30 members representing about 15% of global premium volume.
It provided a framework that enables insurance market participants across the globe to individually start or propel their respective net zero insurance journeys and take urgent and ambitious individual, unilateral climate action. Ways of doing this include client engagement, but also changing underwriting criteria and guidelines and creating new insurance solutions for low-emission and zero-emission technologies and nature-based solutions.
To be members of the NZIA, signatories were committed to unilaterally and independently transitioning their own insurance and reinsurance underwriting portfolios to net-zero greenhouse gas (GHG) emissions by 2050, consistent with the goals of the Paris Agreement. And that is something that is proving hard to do, both in the current political environment and in practice.
Exits from the NZIA
A UNEP spokesperson said: “In light of the recent discussions within the United States, members of the United Nations-convened Net-Zero Insurance Alliance (NZIA), particularly those with significant US business and exposure, have made the individual and unilateral decision to either remain or withdraw from the NZIA.”
Lloyd’s was the latest to withdraw and made a statement that simply said: “Lloyd’s has decided to withdraw from the NZIA with immediate effect. We continue to support the UN’s Principles for Sustainable Insurance and Sustainable Development Goals, and remain committed to delivering our sustainability strategy including supporting the global economy’s transition.”
Lloyd’s became the 10th insurer to withdraw from the NZIA, following QBE, Sompo Holdings, AXA, Allianz, Swiss Re, Scor, Munich Re, Zurich Insurance and Hannover Re. The withdrawal of Swiss Re was interesting given its 2022 commitment to phasing out new fossil fuels. Likewise, Munich Re announced in October 2022 that it would no longer finance, or insure, new oil and gas.
The NZIA response
A UNEP spokesperson said: “As a voluntary initiative convened by the United Nations Environment Programme (UNEP), every company has the freedom to join or withdraw from the NZIA at any point in time and for any reason. Regardless of the situation, UNEP reaffirms its conviction ever since it initiated, convened, and launched the NZIA—that in order to successfully tackle the climate emergency, there is a fundamental and urgent need for collaboration, not just individual action.”
GFANZ added in a statement: “These political attacks are now interfering with insurers’ independent efforts to price climate risk, which will harm policyholders, main street investors and local economies. Despite these political headwinds, we will continue to support insurers’ efforts to manage climate risk and develop transition plans.