Coal is said to be the most polluting fossil fuel in terms of carbon. It is perhaps unsurprising, then, that the past few years have seen a rise in insurance firms refusing to provide cover to the industry. Since March, US insurers Chubb and AXIS Capital, along with Australian firms QBE Insurance and Suncorp Group, have pledged to stop or restrict insurance coverage for coal companies.
In fact, coal exit policies have recently been announced by 17 of the world’s largest insurers, which collectively control 46 percent of the reinsurance market. This indicates that a gradual move towards renewable energy sources could be on the cards.
An environmental plea
The past five years have been the hottest on record, with increasing temperatures often resulting in more natural disasters. This has meant higher claims bills for insurers, with natural disasters costing insurance companies $90bn in 2018, according to Aon’s Weather, Climate and Catastrophe Insight report.
In 2017, international non-governmental organisations launched the Unfriend Coal network, a global coalition set up to urge insurance companies to distance themselves from the coal industry. Recently, the group published a report outlining insurers’ underwriting, divestment and climate leadership policies.
Overseeing one quarter of invested assets worldwide, insurance companies can have a major say on the direction of investment within the global economy
Unfriend Coal has also used its platform to praise the positive steps taken by insurance giants such as AXIS Capital and AXA to transition away from coal, noting that all companies should be following in the same footsteps. As a spokesperson for Unfriend Coal told The New Economy: “The shift against coal is encouraging, but needs to expand and accelerate quickly, with carbon dioxide emissions [increasing] by a record two percent in 2018.”
Climate Analytics, a non-profit climate science and policy institute, has calculated that all coal-fired power stations must be shut down before 2040 if global temperatures are to be prevented from reaching 1.5 degrees Celsius above pre-industrial levels – a critical tipping point, according to the Paris Agreement. As reported by the Financial Times, credit rating agencies have concluded that it is in insurers’ best interests to reduce their exposure to coal, due to the risks posed by the industry.
Overseeing around one quarter of invested assets worldwide, insurance companies can have a major say on the direction of investment within the global economy. As such, having companies as prominent as AXIS Capital and AXA speak out in favour of renewable energy could have a major impact on the future of the coal industry.
AXA has promised to discontinue its financial support of coal in Europe by 2030 and the rest of the world by 2040. Céline Soubranne, the company’s chief corporate responsibility officer, told The New Economy that this is because “achieving the objectives of the Paris Agreement requires exits from the most carbon-intensive industries, such as coal”.
Further, AXA has recently shown its support for the move to renewable energy, acknowledging the important role insurers play in the climate crisis by pledging to offer companies ‘transition’ bonds to help finance a shift to cleaner energy. The firm will also double its green investments to €24bn ($26.8bn) by 2023. With prominent insurance companies speaking up, environmental groups such as Greenpeace are hoping this stance will be seen as a baseline for others.
However, there are still insurance companies across the world that show little intention of curbing the use of coal, and new coal mines are being built by companies such as the Adani Group, which is currently struggling to attract investment for its Carmichael coal mine in Queensland, Australia. According to Greenpeace, the mine will emit 4.6 billion tonnes of CO2 over its lifetime. Due to its lack of funding, the Adani Group has had to scale back the project and is currently in need of additional investment from the Adani family to complete the mine by 2021.
It is important to recognise that opening new coal mines doesn’t guarantee more jobs for communities
The fact that the Adani Group is struggling to secure funding indicates that new coal projects could be considerably rarer in the future, with the CRO Forum urging financiers to participate in a massive and globally coordinated response to mitigate current climate risks. For insurance companies, cutting ties with the coal industry is crucial not only for protecting the environment, but also for ensuring long-term investments are safeguarded by looking to cleaner industries.
The end of the tunnel?
A winding down of the coal industry will inevitably have an impact on its current employees. In the US, in particular, the coal mining industry is enormous, employing 53,000 miners in 2018, according to the US Bureau of Labour Statistics.
The industry is gradually declining, though, with natural gas unseating coal as the top source of US electricity last year. With the country moving away from coal, it is crucial that plans are put in place to accommodate those who are set to lose their jobs as a result. This is already happening in West Virginia, with rumours circulating that a new commercial development park will be built at a decommissioned mine. If true, the new build would provide jobs for former miners while being less damaging to the environment.
Despite US President Donald Trump’s best efforts to scrap his predecessor’s Clean Power Plan – not to mention, his own plans to open more coal mines – natural gas and renewable energy are likely to continue to rise in popularity. Natural gas is often cheaper than coal, while renewable energy is preferred from an environmental perspective. It is also important to recognise that opening new coal mines doesn’t guarantee more jobs for communities, with automated technology increasingly taking the place of humans in the past few decades.
A brave new world
Insurance companies must continue to educate customers about the impact climate change has on their premium prices, as consumers’ choices are one way in which reform can be fostered. The commitment of some insurers to the Paris Agreement’s 1.5 degrees Celsius warming limit could encourage others to question how viable insuring coal is. Urgewald, a non-profit environmental organisation, affirmed the need for the coal industry to become redundant, with a spokesperson telling The New Economy: “Coal-fired power generation must decrease by 78 percent by 2030 if we want to keep the 1.5 degrees Celsius limit within reach”.
In the first half of 2019, the EU experienced an unprecedented 19 percent decline in coal-fired power generation and, by the end of 2019, it is expected to be down 23 percent on the previous year. In other parts of the world, the US is on track for one of its largest annual declines in coal-fired power generation, while non-fossil-fuel energy sources almost met all demand growth in China this year. Following the pattern of insurers discontinuing their partnerships with the industry, there has been a clear movement away from coal across the globe. This ultimately demonstrates the power that insurance companies have in shaping the global economy’s development.