Request Free Trial
August 8, 2023

Editor’s note: insurers under fire, and US IRA vs European green incentives

Oil refinery gas flare
US insurers have been told they must dial down their exposure to fossil fuel-related investments (Photo: David Pradoperucha/Envato)

The latest edition of our Sustainable Views newsletter.

Dear Reader,

Today we focus on insurance. How companies offering compensation for others’ risks deal with their own threats is obviously relevant to any business and industry. How their investments may influence those very risks also deserves some attention.

Should insurers concerned about climate-related risks hold fossil fuel assets? Is this a question to posit in a divestment vs engagement debate, or is there a rather simple answer: as long as oil and gas is a profitable business, investors will just continue to pour capital into it.

Policymakers, argues Ben Howarth of the Association of British Insurers, have much influence on oil companies’ profitability as “it is ultimately up to governments to determine how they generate energy for their citizens and to set the pathway to net zero”.

He tells Alex, however, that “insurers need to have a clear vision of how the economy is likely to evolve”, and have their own transition plans ready “to make sure they are not exposed to additional risks if the government were to phase out fossil fuel usage faster than expected”.

In the UK (and other parts of the world), that’s a big “if”. Prime Minister Rishi Sunak’s administration is pushing ahead with new oil licences in the North Sea, attracting legal challenges and protests.

In the US, a new study shows that insurers held more than $500bn in fossil fuel-related assets in 2019, while also “often lack[ing] an accessible, systematic approach to incorporating climate-related factors into investment decision making”.

The research, conducted by non-profit Ceres and consultancies ERM and Persefoni, also notes a lack of publicly disclosed policies concerning insurers’ fossil fuel assets, writes Alex.

Meanwhile, international efforts to galvanise climate action across the industry are suffering setbacks, as the Net-Zero Insurance Alliance, part of Mark Carney’s Gfanz, has been haemorrhaging members, including some big names.

Earlier this year, NZIA members received a letter from US attorneys-general warning about antitrust concerns; when Munich Re left the group in March, CEO Joachim Wenning mentioned “material antitrust risks”. Politics, not just policymaking, play a role in this debate too.

You will find more on the research and the exposure of the US insurance industry to climate risk in our piece. (Spoiler: the vast majority of global insured losses linked to natural disasters last year came from the US, according to the study).

Also in today’s coverage, as the anniversary of the US Inflation Reduction Act nears, we have an interesting story about how its generous green tax breaks and loans may work only for large groups.

“If you are a rich carmaker with €50bn cash in hand, obviously the IRA is a very interesting proposition,” says Taiwanese battery maker ProLogium’s Gilles Normand. “But what we’ve negotiated with the French government and European Commission is support in the investment phase for research and development, and to start building our gigafactory. This lowers the capital expenditure.”

The company is building a €5.2bn solid-state battery factory in France. Find out more behind its thinking in Danielle’s piece

Until tomorrow,

Silvia

Silvia Pavoni is the editor of Sustainable Views

 

A service from the Financial Times