Stockholm (NordSIP) – The insurance industry’s role in facilitating new fossil fuel extraction projects was brought centre stage in early March of this year as a series of coordinated global protests against the practice took place in 31 countries. On 11 April 2024 non-profit organisation ShareAction published the 3rd iteration of its benchmarking report on the insurance industry. Insuring Disaster 2024 evaluates the environmental and social credentials and policies of 65 large insurance companies. Half of the peer group achieved a low overall E or F score, based on 74 indicators relating to their approach to climate change, biodiversity loss, and social issues.
The business activities of the property and casualty (P&C) insurers, life and health (L&H) insurers, and Lloyd’s insurance market managing agents (MAs) scrutinised by ShareAction have a two-pronged impact on sustainability matters. They may decide to underwrite and cover the risks associated with high-emitting extractive companies or those contributing to deforestation or labour rights violations. The insurers will also affect environmental, social, and governance (ESG) factors through the investment decisions they make regarding their premium pool. The insurance sector is also highly exposed to climate risk through its coverage of physical damage from increasingly frequent extreme weather events. Insurance losses related to natural catastrophes were estimated to have reached $118 billion in 2023.
Apart from a small number of exceptions, most of the insurers’ policies allowed for underwriting of or investment in ongoing or new coal and unconventional oil and gas projects, which is incompatible with Paris agreement climate pathways. Those few companies that had put restrictions in place employed loose wording that could be used as potential loopholes. While many insurers have committed to long-term climate targets, ShareAction found that less than a quarter of the peer group had put interim targets in place for 2030.
Nature and social blind spots
Every North American P&C insurer under review scored zero points for addressing biodiversity in their underwriting activities. This was also the case for almost half of the entire peer group. According to ShareAction, biodiversity and nature-related risk is a significant blind spot for the whole sector, despite the global economy’s reliance on numerous threatened ecosystem services and the well-publicised link between the climate and biodiversity crises.
Social sustainability themes are another weak spot, with the report revealing that while controversial weapons are often restricted, a small minority of the insurers implement restrictions relating to human rights violations or other social issues such as indigenous peoples’ and local community rights. As is evident from the table below, social factors are particularly far removed from the priorities of the underwriting side of the insurers’ businesses.
Source: ShareAction – Insuring Disaster 2024.
In exploring the root of the sustainability-related weaknesses exposed in its report ShareAction points to a lack oversight and relevant expertise at board level, along with other governance-related issues including remuneration typically over-weighted to short-term performance targets. European insurers tend to be stronger in this respect than their Asian or North American counterparts, but the overall standard is still too low. Most insurers appear to neglect setting ESG guidelines when appointing external managers for their investment portfolios.
ShareAction is calling on companies in the sector to use the information contained in the latest report to evaluate their own performance and seek to address weaknesses. The NGO would also encourage asset owners to consider a sustainability-related best-in-class approach to new investments in the insurance sector, as well as challenging existing investee insurers based on this latest report. The fossil fuel industry cannot function without the support of the insurance sector. Growing pressure on insurance companies from public campaigners is being increasingly reinforced by scrutiny from asset owners and regulators.
