The world has woken up to the realities of climate change. Everybody knows that we must accelerate the transition towards renewable energy; in fact, somewhat depressingly, we have known for several decades. After years of inaction, The Paris Agreement, signed by almost 200 signatories in 2016, formally set out a target to keep global temperatures at no more than 1.5°C above pre-industrial levels.
As the underwriter of risk in virtually all areas of business, the insurance industry has a role to play in accelerating the transition away from fossil fuels. Insure Our Future is a global campaign launched a decade ago by The Sunrise Project, which describes itself as “a global network of changemakers”. The campaign started in Australia but went global in 2017, determined to encourage insurers to stop accepting new high-emitting business.
Peter Bosshard, Programme Director at The Sunrise Project, has spent his whole career campaigning for human rights. Having spent many years in the US, he is back in his native Switzerland, from where he tells me about Insure Our Future’s ambition “to turn finance into a force for good”.
Insurance as a way of influencing corporate behaviour
It comes against the backdrop of unprecedented pressure on the industry. In the wake of Covid-19, many popular tourist destinations including Thailand and Morocco introduced mandatory travel insurance for tourists, designed to protect against the public health cost of resurgent Covid outbreaks. Following Russia’s invasion of Ukraine, the EU has also put sanctions on European insurers from offering any cover to vessels carrying Russian oil.
It shows a growing propensity among governments to use insurance as a battering ram, in much the same way that fiscal policy has traditionally been used to disincentivise ‘unhealthy’ behaviours like smoking and drinking.
“We've had mandatory car insurance for a long time, so to me it doesn't feel fundamentally new,” Bosshard says about travel insurance. “But using insurance as a tool for sanctions – that is something that I haven't come across before. I think it may be part of a growing trend of realising the power of influence that the financial industry has.”
By his own admission, neither Bosshard nor his colleagues are insurance experts; they’re climate experts. But that hasn’t stopped them from bringing the fight to insurers. They’ve enjoyed early successes, too. Insure Our Future broadened its scope beyond Australia five years ago, and within 18 months it had persuaded major insurers to voluntarily withdraw support for new fossil fuel installations.
Early successes among large European insurers
“When we started our campaign, no insurance company had taken fossil fuel projects off the table voluntarily. Insurance insiders told us that the essence of insurance is to spread the risk as widely as possible, so no one's going to artificially exclude certain sectors. But within a few months AXA, one of the world's biggest insurance companies, adopted a policy ending insurance cover for new coal projects.”
It was followed by similar measures from Zurich, Allianz, Swiss Re and Munich Re – together representing a huge share of the global insurance market. “We are aware of at least 39 major insurance companies that have adopted restrictions on coal,” Bosshard continues. “We think that new coal power plants have, for all practical purposes, become uninsurable.”
After that initial European success, Insure Our Future struggled to gain additional traction. US insurers hesitated for many years, continuing to write new business for coal companies, while several Asian governments – including Japan and South Korea – were still investing in coal. Gradually, that changed. The campaign was able to persuade more insurers to voluntarily boycott the coal industry, and later set its sights on oil and gas as well. Today, all of the big actors have come on board – but there is still work to do, Bosshard says.
‘Despair and incredulity’ at new coal power plants
“We still see smaller specialty insurers on the Lloyd's market, and also outside the Lloyd’s market, some of them based in Bermuda for example, writing this business. Of course premiums have gone up because there's been such a withdrawal of demand, such a contraction of insurance capacity, and so we now just have shamelessly opportunistic companies who know very well that this [activity] is damaging.
“They could still underwrite a new coal mine, for example, which is not a very complex undertaking. I don't think they would have the expertise to do the due diligence on a big coal power project. They have become uninsurable, but there's still smaller types of projects that could go forward.”
Bosshard admits there are moments of despair and incredulity when he hears about new coal plants. The campaign’s home country, Australia, has continued to flirt with the coal and gas industries, and there are controversial plans for a new coal mine in the north of England.
“Australia has some of the best wind and solar resources on the planet. If they had invested in that early on, they would be a global superpower. They would have a more stable domestic grid and they could export that electricity,” he laments. “In Europe now, with our dependency on Russia and fossil fuels, we would be in such a better situation if we had taken the scientific evidence more seriously 20 years ago. Now we don't have the time for gradual change. We have to move forward rapidly.”
It’s not just new projects that need to be the focus of attention. In order to meet the 1.5°C target, we must phase out existing coal operations. That calls for insurers to constantly reassess who they’re doing business with.
Whose responsibility is it to enact change?
In many Western countries, the private sector is in a constant tug-of-war with government and regulators. Despite the progress that insurance has made in voluntarily withdrawing support for new coal projects, Bosshard says that the chance for better oversight has been missed.
“The state is in the best position to safeguard the public good,” he says. “Voluntary industry action, whether by the insurance industry or by other actors, is not our preferred choice. However the private sector has always pushed for self-regulation and has always opposed a strong regulatory state, including on climate change. It's been civil society which has pushed for stronger climate action by the state, and at every turn of the way we faced opposition, not least from the financial industry. Now they're in a situation where they've got a weak regulatory state and they made a commitment to self-regulation. We're calling on them to do what they need to do.
“We're standing at the abyss and you don't want to be in a position where we're entering unmanageable climate chaos, and you could have made a difference, but you thought it was someone else's job.”
The debate surrounding regulation often depends on what you think is stronger – government imposition, or consumer backlash.
“I think consumer power is one factor,” Bosshard tells me. “It's not the only one. You see reinsurance companies changing course as well, and they don't have retail consumers. Insurance employees expect their employers to take action. Insurance companies have created these public brands – of being on the right side of climate change, of being responsible actors – and I think insurance employees take pride in that. We’ve heard several times that internal pressure was an important reason why companies adopted these voluntary policies.”
‘We will keep doing what we’re doing and rescue what we still can’
“The insurance industry also has a generational problem. Many insurance employees are my age, they are greying! The insurance industry needs to attract a lot of young talent in the next ten years and very clearly young people are more concerned, for obvious reasons, about climate change.”
For Insure Our Future, coal was the obvious starting point for that. It wasn’t possible for them to tell industry to stop using steel, to stop using aluminium, to stop using internal combustion engines straight away. The Net-Zero Insurance Alliance (NZIA) is currently preparing a protocol to measure and disclose insured emissions, which should be completed next month. By January 2023, they will use that protocol to create targets for reducing insured emissions within ‘grey areas’ of the economy, like metals and cement. Insure Our Future says it will monitor things closely and won’t rule out targeting other high-emitting sectors, like aviation, if progress fails to materialise.
The campaign expects to see more determined and widespread action on oil and gas, with insurance companies stopping expansion at least. It also hopes that the NZIA will produce credible protocols to reduce insured emissions across the board that are aligned with the 1.5°C pathways that scientists have set out.
“We could continue to make a quick buck for a few more years but even at an individual level, most of us have families and kids,” Bosshard says. “You should at least care about future generations. We are in a place where we can make a difference and every tenth of a degree matters. We need to keep doing what we're doing and strengthen our efforts, reach more people, rescue what we still can.”