Insurance industry ‘in denial’ over its impact on climate change, study claims

Consumer watchdog slams UK’s leading names for ‘dragging their heels’ over the environment

Photo: iSTOCK / joruba

When it comes to climate change action, we think of airlines, supermarkets, banks and occasionally pensions. We rarely consider insurers.  

But they are certainly exposed to the risks involved, with accounting firm EY recently warning that the impact of climate change on the world’s insurers will be “measured in hundreds of billions, even trillions of dollars”. 

Last week, on the release of the government’s 10-point plan for a “green industrial revolution”, Huw Evans, director-general of the Association of British Insurers, said: “We welcome the government’s ambitious agenda to stimulate a greener industrial economy. The insurance and long-term savings sector has an important role to play in this.

“Crucial to the government’s plans will be the mitigation and management of the UK’s rising flood risk. To protect communities from the economic and emotional disruption that flooding brings, we need to have adequate, sustained and targeted investment in our flood defences and their maintenance, to give those at flood risk the protection they need.”

But this industry is also uniquely placed to be a significant part of mitigation efforts. Collectively, it is a huge player in the UK’s economy, managing investments worth £1.7 trillion. To put that in some sort of context, the Office for National Statistics calculated the UK’s entire net worth was around £10.4 trillion in 2018.

With that kind of clout, where and how the UK’s insurers invest their significant assets is a fundamental part of the picture.  

One damning report on the investments of 23 home and motor insurance companies has revealed what the consumer watchdog behind the research describes as “a stark industry-wide failure to tackle climate change”.

In fact, the investigation by Ethical Consumer returned a “worst” verdict on every insurer in the study when examined for environmental and carbon assessment criteria, including commitments to fossil-free investing, having targets in line with international climate agreements and visible public policies that report on emissions from investments.

Companies were also assessed on the companies they provide insurance for.

Some companies did better than others, with household names such as Zurich, AXA, Aviva, RSA and Allianz reporting on the climate impact of their investments and aiming to reduce them.  

But the report called out esure’s brands esure and Sheila’s Wheels for “opaque” investments among other factors. Ethical Consumer also criticised NFU Mutual, esure, Direct Line, Admiral and Hastings Direct for “just talking about the climate impact of their offices” rather than the far more significant impact of their investments.

“At a global level, insurers are the second-largest group of institutional investors after pension funds. This means that the most crucial aspect of an insurance company for ethical consumers will be its investment policy,” said Josie Wexler, the report’s author.

“However, consumers just can’t access the information they need to understand where and how their insurance premiums are being invested. Consumers are inadvertently funding unethical activities like coal-fired power stations and white phosphorus weapons.”  

“While we understand insurers seek to strike a balance against risk, industry is in complete denial if it does not realise that it needs to address the impact of its investments.”

Insurers have hit back at the findings, pointing to a determination to improve on their environmental, social and governance (ESG) track record, and with some referring to carbon offsetting activities within their businesses and supply chains.

“Contrary to the assertions in this report, we take our responsibility to the environment, to our stakeholders and to wider society very seriously indeed,” an esure spokesperson said, pointing out that the business does not directly hold any equity investments.

“The carbon intensity of our portfolio was recently assessed in September 2020, and it was evaluated as ‘low’, based on the emission disclosures of portfolio companies. Furthermore, the report is mistaken in its assessment of our voting record. Nearly all our investments are in the form of bonds, not shares, and bonds do not carry voting rights at shareholder meetings. That is why the company’s voting record is minimal.  

“Ethical business practices and addressing climate change are core to the strategy at esure and we are fully committed to improving our ESG disclosure in our future reporting.”

The Hastings Group too asserts that responsible investing is a serious consideration for the group and says that it implemented an ESG framework in June this year.

“The framework strives to maintain a high ESG rating across the portfolio and incorporates exclusions to companies that derive any revenue from thermal coal mining or power generation, are involved in the production of tobacco products, or identified as involved in the manufacture, operation and/or sale of controversial weapons.

“More generally, the Hastings Group recognises that a changing climate brings risks to the world and to business, and we have been working with our stakeholders to better understand those risks and to reduce the environmental impact of our operations. We were really pleased to announce last week that Hastings was certified a carbon-neutral organisation from 1 January 2020.”

“Tackling climate change is a shared global responsibility and we all have a part to play,” agreed a spokesperson for NFU Mutual.  

“As a UK-based insurer with rural communities at our heart, NFU Mutual is both responding to the insurance needs of our members and actively reducing our own environmental impact to help drive the transition to a low carbon economy,” they said, adding that the insurer’s fund managers “consider ESG factors throughout the investment process”.

“We avoid areas we consider harmful such as predatory lenders, certain munitions, and climate-unfriendly companies with no plans to help decarbonisation.”  

“As a mutual, we don’t have shareholders and are owned by our members. It is our responsibility to invest carefully on behalf of them in order to provide strong financial performance,” the spokesperson added.  

While claiming “a good track record for investment”, Direct Line pointed out that its own activities are now carbon-neutral through offsetting as part of a strategy to significantly reduce its carbon footprint year on year. The group has plans disclose its total carbon footprint including indirect emissions that occur in the group’s value chain, though this will exclude its investments.

Admiral chose not to respond when contacted by The Independent.