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September 29, 2022

Why insurers are not warming to UN’s Race to Zero

Asset owners' tepid response to new rules could be the root cause for Race to Zero’s recent climbdown on coal investment.

By Polly Bindman

Race to Zero, Gfanz, insurance
I do! Only Allianz has publicly expressed its full support for Race to Zero’s new net-zero policy criteria. (Photo by KaweeStudio/Shutterstock)
  • Of the 29 insurers committed to reaching net zero as part of the Net Zero Insurance Alliance just one, Allianz, has expressed firm support for Race to Zero’s fresh guidance released in June. 
  • Allianz, the only insurer to strongly endorse the update, has the strongest existing policies on fossil fuels, suggesting others are wary of having to update their policies.
  • Race to Zero recently stepped back from requiring accredited members to no longer invest in new coal projects.  

In response to the IEA’s assertion there can be no new oil or gas fields approved for development in its net zero scenario, Capital Monitor last year asked influential oil and gas insurers whether or not they planned to update their policies accordingly. Only seven responded and none of those were prepared to make firm commitments.

More than a year on and little has changed. While 29 insurers have now committed to reach net zero by 2050 as members of the Net Zero Insurance Alliance (NZIA), its existing commitment statement makes no mention of fossil fuels. 

The NZIA was formed in July 2021 under Mark Carney’s umbrella group for financial institutions committed to reaching net zero, the Glasgow Financial Alliance for Net Zero (Gfanz). Its members sign up to transitioning their underwriting and investment portfolios to net zero greenhouse gas by 2050.

In line with IEA’s 2021 net zero scenario, Race to Zero, the UN standards body which provides accreditation for all Gfanz members ruled in June this year that all members must commit to phasing down and out all unabated fossil fuels from 2023, or risk getting expelled from the alliance.

Crucially, Race to Zero stated in the accompanying interpretation guide to the starting line criteria: “Across all scenarios, this can mean no new coal projects”.

Cold shoulder

The response both publicly and privately to this ratcheting has been frosty at best, with many institutions claiming the bar has been set too high. The Financial Times reported on 21 September, some Wall Street banks are threatening to leave the alliances as a result. Some claim it is potentially in conflict with antitrust laws – that forbid collusion among competitors, or with their fiduciary duty to clients.

In September, Race to Zero subsequently removed the reference to new coal projects in updated guidance on its starting line criteria. It now reads that banks should phase out their “development, financing and facilitation of new unabated fossil-fuel assets, including coal, in line with appropriate global, science-based scenarios.”

Another key difference between this update and the original text is the word ‘unabated’, meaning fossil fuel investments can continue as long as the carbon is somehow offset.

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Results from a survey taken between these two crucial updates from Race to Zero, and shared exclusively with Capital Monitor, offer an insight into the sentiment of NZIA members towards the standards body.

The Insure Our Future campaign, set up by a global coalition of NGOs for climate justice, sent a survey to 28 members of the NZIA (Insurance Australia Group only announced it was joining on the day the letter was sent) asking them whether or not they considered they were already in line with the new rules and, if not, what they intended to do to ensure they would be. 

Of the 28 contacted, 18 responded (see chart below), but only one, Allianz, offered clear support for Race to Zero’s June rules. Hannover Re indicated it was ‘working on the implementation of the criteria’ but provided little detail on how.

Petra Vielhaber, sustainability manager at German insurer Allianz told Insure Our Future it is: “Strongly supporting the new Race to Zero criteria as they raise the ambition level significantly while carbon budgets are shrinking, and climate action is getting more urgent.” It confirmed that it will “certainly be taking updated…criteria into account” when updating its targets.

Capital Monitor contacted each of the respondents to Insure Our Future asking them if Race to Zero’s September update would alter their responses. Munich Re, Aviva and Zurich responded by the deadline confirming their answers remain unchanged.

Policies don’t currently align with Race to Zero

Read alongside their own fossil fuel policies, insurers have a long way to go to align with Race to Zero’s new rules, casting doubt on how Gfanz, or its individual members, can retain its accreditation beyond June 2023. It’s equally unclear if Race to Zero’s backtrack on coal would make life easier for them to align.

According to its most recent analysis of insurers’ fossil fuel policies, Insure Our Future ranks Allianz as highest for its policies preventing the underwriting of fossil fuel businesses. It’s possible that for others, stricter rules on fossil fuels could be a deterrent from pledging full support to Race to Zero’s new guidelines.

Capital Monitor’s analysis of separate policy scores from financial non-profit Reclaim Finance’s Coal and Oil and Gas policy trackers places AXA’s score above Allianz’, which comes out second highest.

Reclaim Finance attributes the individual insurers’ scores based on their policies on coal projects, expansion, and phase-out, as well as oil and gas projects, development and phase-out, scored out of a total of 50 for coal and 30 for oil and gas. 

Allianz receives the second highest score of all (36) for its coal policies, which include exclusions for new and existing coal mines, projects, and infrastructure, and all new coal developers from 2023 onwards. Notably, Allianz’s coal policies, along with other members of the NZIA such as AXA, appear to be already in line with Race to Zero’s baseline rules on the commodity. 

On oil and gas, however, none of the insurers above appear to be aligned with Race to Zero’s rules. Not a single insurer in Reclaim Finance’s database that responded to the survey currently has any policies on oil and gas expansion or phase-out. It is hard to see how they would not need to implement tighter rules on these fossil fuels, either set by themselves or the NZIA, in order to comply with Race to Zero’s updated criteria. 

Capital Monitor has already reported on the mixed messaging from Gfanz members regarding Race to Zero’s criteria on fossil fuel policies.

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In August, Remco Fischer, climate lead for the UN Environment Programme Finance Initiative, which convenes three of the seven alliances – the Net-Zero Banking Alliance (NZBA), the NZIA, and the Net Zero Asset Owners Alliance (NZAOA) told Capital Monitor it was unlikely individual alliances will need to update their core commitments to meet Race to Zero’s new rules. He said they are already either “explicit or at minimum implicit” in existing guidelines. 

Not buying the argument, this prompted a group of NGOs to write to the UN imploring it to tighten its rules. 

The responses to Insure Our Future echo these sentiments. For example, Ryoko Shimokawa, executive officer at Japanese Insurer Sompo told Insure Our Future that the “Group's perception is that the Race to Zero criteria will basically be consistent with the NZIA criteria”. 

Aviva, specifically stated that it was already in line with the starting line criteria, including the need to ‘phase down and out all unabated fossil fuels’, with Zelda Bentham, its group head of sustainability, adding “there is always more we can, and will, do”.

Yet Hannover Re, which receives higher fossil fuel policy scores from the NGOs than Aviva, told Insure Our Future that it is not currently in line with the new rules, and is working on implementing them.

The next few months may reveal who remains in or out of the Race to Zero group next year. Given the current state of uncertainty, it’s looking likely that Gfanz will lose some members, or else accreditation.  

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