The UN Finance Initiative recently underscored the critical role of banks, insurers and investors in addressing climate change:
Climate change is referred to by leading economists as the greatest market failure in human history, with potentially disruptive implications on the social well-being, economic development, and financial stability of current and future generations: conservative estimates see unabated climate change leading to global costs equivalent to losing in-between 5 to 20% of global gross domestic product (GDP) each year, now and forever.
The financial system is beginning to respond. Net-zero goals by companies, asset managers, asset owners, banks and even some global insurers are proliferating. The largest U.S. banks recently joined their European counterparts in measuring climate-related emissions, developing climate transition plans and setting net-zero goals. Unfortunately, U.S. insurance companies are lagging. While many have set reduction goals for their Scope 1 and 2 emissions, and some have policies about coal, the largest U.S. insurers have not aligned their Scope 3 underwriting- and investment-related emissions with the Paris 1.5o C goal. As a result, American International Group (AIG), Berkshire Hathaway, Chubb, The Hartford Financial Group, and Travelers received climate-related shareholder proposals this year.
As You Sow filed proposals asking insurers to measure, disclose and set net-zero targets for their underwriting and investing activities. These reduction targets are critical. If insurers continue to underwrite and invest billions in high-carbon companies and projects, they facilitate business as usual and carbon emissions will increase. To reduce emissions, insurers can build the price of climate change into their insurance products, limit investments in carbon intense companies and limit underwriting for high carbon projects.
New fossil fuel projects are a good start. Green Century Capital Management filed resolutions at Chubb, Travelers and The Hartford, and the Presbyterian Church (USA) filed at AIG, demanding that they end underwriting activities that support new fossil fuel project production. The International Energy Agency’s Net-Zero by 2050 pathway leaves no room to underwrite or invest in new fossil fuel development.
The core business of the insurance industry is to assess and manage risk. Yet, despite growing catastrophic losses caused by climate change, insurers are failing to reflect this risk in their underwriting and investments. Insured losses from natural disasters reached $42 billion in the first six months of 2021, a ten-year high. Underwriting and investing in high carbon companies increases the vicious cycle of climate-related losses.
Insurers have responded to the challenge in a variety of ways. AIG announced new underwriting exclusions for fossil fuel expansion and Artic drilling. The Hartford reached a withdrawal agreement with As You Sow and will make an announcement at its AGM. Berkshire has engaged with As You Sow on the proposal but made no commitments. Chubb and Travelers challenged both proposals at the SEC, and The Hartford challenged the Green Century proposal. Whether the challenged proposals go to a vote this year or not, insurers have been put on notice that investors expect quick and ambitious action to reduce their contributions to climate change.
Danielle Fugere
President, As You Sow
Andrea Ranger
Shareholder Advocate, Green Century Capital Management