The insurance industry’s massive investments in fossil fuel companies — to the tune of $459 billion — represents a risky bet as demand for coal, oil and gas drops and renewable energy gains momentum, according to a Ceres report released yesterday.
Insurance groups Ameriprise (12.4 percent), Lincoln National (11.8 percent) and Voya Financial (10.9 percent) had oil and gas bond holdings of well over 10 percent, more than double the median bond portfolio concentrations of the overall group (5.1 percent), according to the report, written in collaboration with investment consulting firm Mercer.
“As the world moves with greater urgency to tackle climate change, these findings should be a wakeup call for all insurers with extensive investment in these sectors,” said Ceres president Mindy Lubber in a phone call with reporters.
The report comes as a growing number of insurance companies are pricing climate change risks into their policies.
Fossil fuel holdings are becoming increasingly risky, Ceres says. Sixty-nine North American oil and gas producers have filed for bankruptcy since the beginning of 2015. The sustainability advocacy nonprofit’s own analysis found that more than 70 percent of the top oil and gas companies invested in by the 10 largest insurance groups and rated by Moody’s or S&P have been subject to some sort of credit downgrade in 2015 and 2016. Case in point: ExxonMobil lost its triple-A bond rating last month.
Ceres released the report just a day before ExxonMobil and Chevron shareholders are pushing the oil giants to disclose their climate change risk at both companies’ annual meetings, held today. The climate-change related proposals up for votes more than doubled this year to 11.
“Exxon is facing a record nine climate resolutions and a record number of funds with assets worth $10 trillion have announced they will vote for climate risk disclosure,” said Julian Poulter, CEO of the Asset Owners Disclosure Project, in an email before the votes. “A strong vote for climate risk disclosure on Wednesday could signal the end of investor support for Exxon and Chevron’s oil based business model and start their transformation into diversified energy companies.”
Lubber says State Farm holds 37 million shares in Exxon stock and 15 million shares in Chevon stock, worth about $5 billion.
The report says oil and gas companies — ExxonMobil in particular — face an even greater financial risk because they must respond to investigations and potential litigation over deliberately misleading shareholders about the business risks posed by climate change.
The report also found a wide range in electric/gas utilities bond holdings, with the highest concentrations held by John Hancock (16.8 percent), Pacific Life (16 percent) and Lincoln National (14.4 percent). Lowest were Progressive (.5 percent) and QBE (0 percent). The report does not take into account the fuel mix of these utilities.
Coal is a minuscule part of insurers’ overall holdings, accounting for only $1.8 billion, four times less than the $7.2 billion invested in renewable energy. While insurers’ renewable energy investments are growing, Ceres says they still do not reflect the scale of clean energy investment opportunities required to avoid climate change risk and meet the demands of the Paris climate deal.
“Our analysis suggests the fossil fuel industry stands to lose $33 trillion in today’s money by 2040 as the world progresses towards a 2 degree policy framework,” as per the Paris climate agreement,” said Mark Lewis, managing director European utilities research at Barclays Investment Bank, in a phone call. Lewis says oil stands to lose about $22 trillion over 25 years compared to $6.1 trillion for gas and $5.7 trillion for coal. — compared to about $5 trillion each for oil and gas.
Insurers, or more precisely, reinsurers that often take on some of the globe’s biggest claims, have become quiet spokesman for governments — and businesses — taking action to curb climate change. They are concerned about paying out claims tied to weather-related events, which may — or may not — have some association with rising temperatures.
The report doesn’t call on insurance groups to divest energy holdings. It does, however, suggest insurance board of directors make climate risk management “an integral part of their investment decision-making” and says they should consider requiring the insurers’ Investment Policy Statement (IPS) to explicitly include a climate risk management strategy.
In January, California insurance commissioner Dave Jones called on 1,300 insurers operating in the state to voluntarily divest in thermal coal. “We did this because of the concern that coal will become a stranded assets on the books of insurance companies,” he said in a phone call.
Jones also announced new requirements for insurers to publicly disclose carbon-based investments annually. The first disclosures are due July 1. He said investors face “a significant risk” from policy changes to limit global warming.
Image Credit: Ceres
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