26 January 2016
California's insurance commissioner has called for insurers to divest from coal and will request disclosure of their carbon-based investments.
"Today I ask insurance companies doing business in California to voluntarily divest from investments they hold in thermal coal," said Dave Jones at the California Department of Insurance on Monday.
The department regulates the largest insurance market in the US and the sixth largest in the world, where insurance companies collect $259bn in premiums from Californians annually.
He also announced that in April, he will initiate a data call that requires insurance companies to disclose annually their carbon-based investments including those in oil, gas and coal. These disclosures will be made public and will be used by the Department of Insurance to assess the degree of financial risk posed to insurance companies by their investments in the carbon-based economy.
"My decision to ask insurance companies to divest from thermal coal and to require insurance companies to disclose investments in the carbon economy arises from my statutory responsibility to make sure that insurance companies address potential financial risks in the reserves they hold to pay future claims."
As the world is limiting its use of coal, he continued, "investments in coal and the carbon economy run the risk of becoming a stranded asset of diminishing value."
"The movement away from coal and the rest of the carbon economy poses a potential financial risk to insurance companies investing in coal and the carbon economy," he added. "The potential risk of continuing such investments is that they lose value over time or that they lose value quickly. In either case, such investments pose a potential financial risk to those who invest in them."
California is decarbonising its economy and transitioning to clean, pollution free energy resources, he said, and two of the world's largest pension funds, also based in California —CalSTRS and CalPERS—have been required by the state legislature to divest their thermal coal investments by July 2017.
Jones cited Allianz and Axa as insurers that have already refrained from investing in coal or coal-related companies or started targeting renewable energy investments.
Allianz has indeed declared it is committed to responsible insurance and investment, and assesses each business transaction for ESG considerations. Axa has also pledged its commitment to corporate responsibility, and its ESG performance is evaluated by various organisations, including rating agencies.
But fossil fuel related investments might be part of many insurers' portfolio, as they endeavour to diversify in order to generate better returns and face lower risks. Robert Hartwig, president of the Insurance Information Institute, an industry group, told Bloomberg News that ruling out one sector, as Dave Jones did, creates a slippery slope, where insurers might come under pressure to get rid of even more holdings.
Insurers and climate change
The insurance sector, which is particularly sensitive to the risks posed by climate change (a rise in temperature could lead to a lack of affordable insurance), is to become a major player in the fight against it, through its investment decisions and through its participation to commitments.
After leaders agreed to limit global warming at the December 2015 Paris Climate Conference (COP21), several insurers and associations pledged their support.
Michaela Koller, director general of Insurance Europe, the European (re) insurance federation, and Michael McGavick, CEO of XL Group, a US-based insurance group, speaking on behalf of the International Insurance Society, an industry centre for international collaboration, and the International Cooperative and Mutual Insurance Federation, a best practice organisation, openly pledged the industry's support in the fight against climate change.
Insurance Asset Risk reported in recent weeks on various investment transactions related to sustainability and renewable energy, done by insurers such as by Delta Lloyd, Munich Re, Allianz, Aegon, Mizuho, Legal & General and AB: