US insurers invested in fossil fuels as climate risks to underwriting mount
U.S.-based insurers have invested hundreds of billions of dollars in fossil fuel-related assets which in turn contribute to the risk of climate-related damage to the underwriting side of their businesses, a new report said on Tuesday. A data sample comprising 77% of U.S. insurers showed they held fossil fuel-related assets worth $536 billion in 2019, and patterns are unlikely to have changed dramatically since then, according to sustainability consultancy ERM, investor advocacy group Ceres and carbon accounting firm Persefoni. As governments and shareholders put increasing pressure on financial firms to measure and curb the flows of capital to businesses that warm the climate, the report says insurers are “uniquely exposed.” Climate catastrophes like wildfires are prompting some businesses to stop covering homes in high-risk areas like California, and decisions made on the investment side to put money in activities facing tougher regulation could squeeze their finances, Ceres managing director Steven Rothstein said. “If they have stranded costs on investments they won’t be able to pay out on underwriting,” Rothstein said. “While the day to day is different, strategically they are very connected.” The researchers interviewed executives, state regulators and other experts to assess what might have changed since 2019, the most recent year for which the data, collected by California regulators, was available. Some companies said they had made “huge changes,” and the researchers said there was evidence the sector had made a “significant effort” to respond to global expectations about how they loan to and invest in emitting companies, but that it would take several years for this to show. Insurers have to invest for the long term, meaning that assets like bonds might sit on their books for years after a policy shift. “We started excluding coal in 2015, but some of our coal bonds run for 20 years,” one executive from a Europe-headquartered insurance group said. All participants were granted anonymity. The report counted corporate utility assets as “fossil fuel-related,” but the researchers acknowledged that many in the sector are investing heavily in clean energy. Our Standards: The Thomson Reuters Trust Principles.
Related Knowledge Center: Climate economics
Climate change is now a driver of the world’s economy. The impact is profound:
- Catastrophic weather events — hurricanes, floods, droughts, high temperatures — are more frequent and more extreme. The cost can be measured in both the initial damage caused and the longer-term impact on the economy.
- Vulnerable communities are increasing climate-related investments, hardening infrastructure and taking other protective measures.
- Investment in carbon capture and storage technologies is increasingly rapidly.
- Governments are making investments and crafting regulations to reduce emissions of carbon dioxide and other greenhouse gases.
On top of all of this is the cost of uncertainty. As the Fourth National Climate Assessment, released in 2018 by the U.S. Global Change Research Program, says, “The assumption that current and future climate conditions will resemble the recent past is no longer valid.”