Axa’s Vow To Stop Insuring Coal Hits At Industry’s Soft Underbelly

When the French insurance giant Axa unveiled its plan this week to end all business with coal companies by 2030 in Europe and OECD countries and by 2040 in the rest of the world, some environmental groups blasted it. 

“It is unacceptable that Axa continues to invest in climate-destroying fossil fuels, which also include oil and gas,” said environmental group 

“It’s a positive step, but the change is coming too late, because Europe must phase out coal plants by 2030, anyway,” said Doug Ruley, chief counsel for legal non-profit ClientEarth. Only this month, Ruley observed, the European Investment Bank pledged to phase out lending to fossil fuel projects by as soon as 2021

Coal is among the dirtiest of fossil fuels and use of it needs to end rapidly, experts say. It should be phased out in OECD countries by 2031 and in non-OECD Asia by 2037, according to projections by Climate Analytics, if the world is to limit temperature increases to the 1.5°C recommended by the Paris Agreement on climate change. 

But not everyone was down on Axa’s new policy. German non-profit Urgewald welcomed the move. And the famously confrontational Greenpeace had little but praise, saying Axa’s plan “sets a new benchmark for the insurance industry.” 

To these green groups, this multinational’s plan deserves plaudits because insurance, unlike other business sectors with ties to coal, is a particularly important life source for coal mining and power companies. An ocean of financing may be available to nourish coal firms, but insurers are limited in number and more difficult to replace. 

“You don’t have a lot of players making the deals happen who have the expertise,” said Pinson, a campaigner with Unfriend Coal who has investigated insurers’ ties to coal companies. “Maybe a company could get insurance [from a new provider], but this insurance won’t necessarily be a good deal.” 

There are fewer than 20 global insurance companies active in the energy sector, Pinson said. Even smaller is the pool of insurers who can provide the expertise necessary for many projects. For example, there are just a handful of insurers who can act as “lead” in conducting due diligence and underwriting for power projects in Asia, where most new coal projects are being developed, according to a 2018 report by Unfriend Coal. And of those, all but a couple have ended or limited their involvement, the report says: US-listed AIG and Chubb. 

There are signs that the gradual paring back of available insurance options is already hurting the coal sector, the mining industry in particular. In a September report, the insurance broker and risk consulting firm Willis Tower Watson described an “increasing and worrying trend for insurers to withdraw from what they consider to be environmentally unfriendly industries such as coal,” in a way that “leaves very few primary markets left for coal miners to turn to.” 

On Monday November 2nd, a new report by more than a dozen civil society organizations, called “Insuring Coal No More: The 2019 Scorecard on Insurance, Coal and Climate Change,” will dig deeper into the sector and update its report from last year. It will be launched to an industry audience at the Insurance and Climate Risk conference in London, just as the UN Climate Summit in Madrid gets underway.

To be sure, insurance companies are not acting merely out of goodwill. The risks of insuring coal companies are on the rise as the coal sector contends with an increasingly menacing regulatory environment. Even more perilously, the contributions that coal burn make to climate change heighten the risk of natural catastrophe, potentially driving up insurance costs so much that far more than just the coal industry becomes unprofitable to insure. 

“[R]unaway climate change will create risks so large that conventional market mechanisms may no longer be suitable,” Axa said in its unveiling of the plan. 

In addition to setting phaseout targets for the underwriting of insurance for coal companies, Axa also this week committed to investing €24 billion in green investments by 2023, and to ensure its investments are consistent with a global temperature increase of no more than 1.5°C by 2050. Campaigners say that those commitments, too, are substantial, since divestment from fossil fuel sectors must be matched by investments in green sectors to make it worthwhile. 

There are reasons to doubt that even a complete pull-out of insurers from the coal sector would spell the end. Many large multinational coal mining companies have their own in-house insurers, known as captives. Pinson said that it remains “unclear to what extent they can only rely on them,” since captives might not be able to provide the kinds of comprehensive coverage services that coal groups need. But that still left the possibility that the largest coal mining groups could survive without coverage from an outside group. 

No matter the upshot, it is clear that Axa’s new policy is only the latest blow to an industry that appears in terminal decline. One day before Axa released its plans, Italy’s UniCredit bank said it would stop all lending to thermal coal projects by 2023. Coal companies just can’t catch a break. 

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