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The Inside TrackESG

Net Zero ambitions crumble in the face of US law threats

Front facade of Washington DC Capitol at night

Insurance industry ambitions to forge a global alliance to ensure it makes an effective contribution to the drive to achieve Net Zero carbon emissions have crumbled in the face of threats from US lawmakers.

The much-heralded Net Zero Insurance Alliance is now almost dead as a major insurers, reinsurers and Lloyd’s rushed for the exit door when 23 US state attorneys general rattled their collective sabres by threatening to take action against the members of the Alliance under US competition law. The reasons cited by the Republican lawmakers contain many of the objections to tackling the impacts of climate change bandied about by American climate change sceptics and which have contributed to the growing momentum of the anti-ESG movement in the States.

The exodus contains some of the biggest names in global insurance, and some of those making the most noise about tackling climate change and reaching ambitious net zero targets: Swiss Re, Munich Re, Allianz, Scor, Mapfre, QBE, Sompo, Zurich, Axa and Lloyd’s. Out of the impressive cast of major European insurers that set up the Alliance only Aviva and Generali are left, neither of which of significant business in the US. Lloyd’s exit in early June was a rapid volte face as chairman John Neal went on record in mid-May as saying Lloyd’s had no plans to leave, although he appealed to the Alliance to make its rules less prescriptive to avoid criticism from some US states.

The letter sent to members of the Allianz by the attorneys general accuses insurers of advancing an “activist climate agenda” and that pressure on fossil fuel interests was contributing to inflation: “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.”

...we must wonder whether their ditching of the Alliance has more to do with the fear of losing business in the US than real legal jeopardy.
Patrick McCully Senior analyst, Reclaim Finance

Few of the departing insurers have said why they fled at the first sign of trouble, although most have re-stated generalised commitments to sustainability. Lloyd’s said it was still “committed to delivering our sustainability strategy, including supporting the global economy’s transition”.

The Alliance is part of the initiative launched by former Governor of the Bank of England Mark Carney at COP26, called the Glasgow Financial Alliance for Net Zero (GFANZ).

GFANZ was quick to condemn the pressure on insurers as politically motivated. In a statement after the most recent exodus it said: “We want to acknowledge the political attacks interfering with insurers’ independent efforts to price climate risk, which will harm policyholders, investors and economies.”

Insure Our Future, which has been at the forefront of the campaign to move the insurance industry away from underwriting and investing in fossil fuels was also clear that it believed the attacks were political:

“The anti-trust threat made by US state attorneys general is widely considered to be without merit as the NZIA obliges members to set weak targets and report progress, but not to take specific actions. Meant to protect consumers from price-fixing, anti-trust law is being used as a political weapon by fossil fuel industry funded politicians to scare insurers from taking legitimate and necessary climate action.”

The industry’s timidity in the face of this political pressure has been the subject of bruising criticism.

“As the Net Zero Insurance Alliance disintegrates before our eyes, we must ask why these huge companies with their hordes of lawyers did not see anti-trust issues as a major obstacle when they founded the Alliance. And we must wonder whether their ditching of the Alliance has more to do with the fear of losing business in the US than real legal jeopardy”, says Patrick McCully, a senior analyst at Reclaim Finance.

...the Alliance continues losing members at rapid pace
Tom Chamberlain Vice president, customer consulting, Hyperexponential

Tom Chamberlain, vice-president, customer consulting at actuarial and pricing firm Hyperexponential, was just as hard-hitting in his criticism:

“The NZIA exodus is not just an enormous loss for the insurance industry, but a loss for society. Formed to tackle climate change, the Alliance continues losing members at rapid pace due to this misguided belief the Alliance would ban its members from insuring certain businesses. It now stands at just 17 members, from an initial 28.

“This is a huge missed opportunity for the insurance industry and frankly totally unacceptable that climate change is taking second place to protesters falsely claiming anti-competitiveness issues. Insurers can't stand alone against carbon emissions, and without the help of insurers, companies with net-zero goals will struggle to succeed.

“If world leaders are serious about drastically reducing the effects of climate change, they have to get behind bodies like the NZIA and push for change, otherwise it will be too late. The speed at which the NZIA is crumbling doesn’t bode well for other bodies pushing the world to Net Zero.”

At a federal level in the US insurers face pressure to move in the opposite direction. The Senate Budget Committee has called on AIG, Chubb, Liberty Mutual, Starr Wright USA, Berkshire Hathaway, State Farm, and Travelers Insurance to disclose their coverage for and investments in fossil fuels, along with information on how each insurer respects human rights.

A letter sent to the insurers by the committee ‘s Democrat chair, Senator Sheldon Whitehouse, and also signed by fellow Democrat committee members Senators Ron Wyden and Bernie Sanders, asks the insurers several questions regarding plans to scale back, phase out, or eliminate support for current and expanded coal, oil, and gas projects, as well as questions related to companies’ climate-related lobbying.

The European Union and the UK government are moving to ease anti-trust guidelines for firms that want to co-operate on acting on climate-related issues.

The European Commission says that from July it will create a “safe harbour’ from prosecution for groups of companies that enter into “standardisation agreements”. This would cover boycott of plastics, fossil fuels or steel produced from coal-fired plants, even if these actions increase prices. This dispensation will only apply to groups of companies that do not constitute more than 20% of a market and there are restrictions on the exchange of commercially sensitive information.

The UK’s Competition and Markets Authority has been even bolder.

In February it published a draft proposal to allow collaborations that have a substantial and demonstrable impact on climate change, saying that the magnitude of the risk required a more permissive approach, and one that does not specify any restrictions based on market share.

Insurers wanting to deliver on their commitments to promote sustainability now find themselves torn between the hostility of Republican US States and the more flexible approach of British and EU regulators. For European insurers with a large portfolio of American business and US insurers wanting to live up to the expectations of European governments and buyers, sitting on the fence seems an increasingly uncomfortable option.