Support from insurers for the carbon-combatting Net Zero Insurance Alliance (NZIA) has collapsed like a house of cards.
Lloyd’s, the leading insurance market, has become the latest big name to withdraw from the group – a major blow to the United Nations-backed initiative, which could have far-reaching implications in the fight against climate change.
Lloyd’s joins a heavyweight list of insurers, which includes AXA, Allianz, QBE, Swiss Re, Munich Re, Zurich, Hannover Re and Sompo, who have all withdrawn their support from NZIA. The ongoing machinations in US politics are behind the evaporating support for the body.
The decision comes after Republicans in the United States accused NZIA of violating US anti-trust laws by effectively working together to reduce carbon emissions.
Via this law, the accusation is that the body corroborated in the intent of price-fixing and distorted insurance provision.
Stand against ESG
Some observers have noted that behind that accusation there is a wider Republican drive against financial institutions using environmental, social and governance-related (ESG) factors in their decision making – which, as any reader of portfolio institutional knows, is highly prevalent.
And a key point is all these major insurance groups have substantial business in the US. So faced with a threat to their operations or support for NZIA, it could be said there was always going to be only one winner.
It does mean the momentum built up by NZIA, after it was created at the Glasgow Financial Alliance for Net Zero at COP26 in 2021, could be lost.
Miqdaad Versi, a partner at consultancy Oxbow Partners, said the move by the insurers “does dampen the momentum surrounding NZIA and decreases the likelihood of collaborative efforts in the future.”
And he added: “The big achievement of NZIA was the Target Setting Protocol v1.0 which laid out the approach for calculat- ing targets for insurance-associated emissions to align to net-zero.”
Darius Nassiry, vice president of climate, resilience and sustainability at sustainable energy group WSP, described the situation as worrying. “Climate change threatens to make the entire world uninsurable, so collective action is vital,” he said.
Reducing climate risk
He added that a worrying development is that the work done by insurers to address climate investment risk could be lost. “Insurers leaving NZIA should keep their targets, because reducing climate risk in investments and insured assets is rational and necessary.”
Gabrielle Siry, head of sustainable finance and European co-operation at the French Prudential Supervision and Resolution Authority, has estimated that climate change could mean costs doubling for insurance companies by 2050. “It means that insurers will need sufficient capital to face these risks and these damages,” she said.
Dr Caroline Metz, senior EU policy officer at ShareAction, said there are clear lessons from the situation. “The decline of NZIA makes one thing crystal clear: voluntary initiatives won’t deliver net zero. We need robust regulation.”
MEP Henrike Hahn, shadow rapporteur on the Solvency II review for the Greens and European Free Alliance group, has already called for mandatory transition plans for insurers.
Capital charge
ShareAction is calling for the adoption of a one-for-one rule, whereby investments in companies involved in new fossil fuel projects would be subject to a 100% capital charge.
“Such a precautionary approach to how we regulate insurers’ involvement in [new] fossil fuel projects would not only protect the insurance sector itself against unforeseen risks and losses but would also positively contribute to the green transition,” Metz said. “That higher capital requirements for fossil fuel investments will also make it more costly for insurers to insure and invest in these types of projects.”
The whole situation as it stands raises big questions about insurers, and with it other leading investors, committing to net zero objectives going forward.
Vipul Shetty, a specialist focused on the energy transition, said there have been flaws in NZIA’s approach in regard to geographies. “If NZIA is serious about transition they should realise that a global policy is never globally enforceable and that local environments in Europe versus Asia are very different from each other. Asia needs to transition in a different manner than their western counterparts, and for that, separate policies need to be created.”
Remaining members of NZIA include Aviva, Generali from Italy and the French-based Credit Agricole Assurances. At one time, 32 insurers were members of NZIA.
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