For the insurance industry to fulfill its stated commitment to combat climate change, it may want to accelerate its efforts to exit the oil and
To date, just one insurer has promised to take “significant action” in this regard, according to analysts at Societe Generale SA. Australia’s Suncorp was the first
While insurers (23 in all) have moved to end their
Reducing exposure to oil and gas has to be the next environmental objective for the insurance industry, said Nick Holmes, the London-based head of the insurance research team at SocGen.
Oil and gas accounts for 55% of all global carbon dioxide emissions unrelated to land-use such as deforestation, compared with 40% for coal, according to a group called
The United Nations’
For insurers, “we feel momentum is starting to gather in this area,” Holmes said.
The
Insurers can have a huge impact on the oil and gas industry by refusing to provide coverage for the very worst aspects of the industry when it comes to atmospheric and environmental destruction—oil and tar sands, oil shale and Arctic drilling—and by refusing to insure new projects, the SocGen analysts wrote in their 26-page report entitled “Insurance ESG Big Picture.” Premiums from insuring new
In other words, insurers can afford to drop the world’s biggest perpetrators of
Companies such as Axa SA and Assicurazioni Generali SpA have begun to restrict insurance for oil sands, oil shale and Arctic drilling. Insurers that take decisive measures should become more eligible for what the SocGen analysts call a higher “green valuation premium.”
European insurers have shown their desire to combat global warming by
The analysts give
“We think ESG investors should recognize this with a ‘green’ valuation premium,” Holmes said.
The SocGen analysts have determined that an insurer’s position on ESG-related underwriting and investments can have an effect on its valuation ranging from -3% to +9%, mainly driven by environmental factors such as exiting coal. Using this system, the bank’s analysts raised their target price for Axa and Swiss Re by 6%, and their target price for Generali, Zurich, Allianz SE and Munich Re by 5%.
Some insurers deserve credit for increasing their investments in the “green” economy, Holmes said. Most European insurers and reinsurers, led by Allianz and Axa, boosted their green investments by 20% to 30% in 2020. Axa plans to raise its green holdings to 25 billion euros by 2023 from 16 billion euros at the end of last year.
In July, eight European firms established
The insurance alliance “aims to be a high-ambition group, which is positive,” Bosshard said. “But if the members want to follow the science and show credible ambition, they have to stop insuring new oil and gas projects.
The new SocGen report finds that doing so will also be in their financial self-interest.