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Local Governments Asking Insurers to Cut Ties to Coal

May 5, 2020, 10:00 AM

Local governments outside the U.S. have long been pressuring insurance companies to sever ties with fossil fuels, and the issue is starting to gain some traction domestically.

New York City is urging the three largest U.S. insurance companies to divest immediately from the coal industry. San Francisco and Boulder County, Colo., previously moved to put pressure on insurance companies to back away from fossil fuels.

A bill (S.B. 345) before the Connecticut Legislature would require the state’s insurance commissioner annually to collect information from Connecticut insurance companies about their investments in fossil fuels, insurance underwriting of fossil fuel projects and companies, and exposure to climate risk in their investments. The bill’s aim is to accelerate the transition away from fossil fuels, according to March 5 public testimony.

Scott M. Stringer, New York City comptroller, called last month on Berkshire Hathaway, AIG, and Liberty Mutual lnsurance Co. to end all business ties with coal companies, including ceasing to underwrite any coal projects and divesting any holdings in companies that extract or distribute thermal coal.

Coal divestiture campaigns are having a financial impact on the industry, and New York’s involvement will accelerate changes, Elchin Mammadov, an analyst with Bloomberg Intelligence.

“Increasingly, more and more underwriters will stop insuring coal,” he said in an interview. “It’s unavoidable, it’s bad for ESG and it’s increasingly questionable from the economic point of view.”

European Effect

The Unfriend Coal campaign has begun to have an effect on insurers in Europe, with Swiss Re, Zurich, AXA, and Allianz moving away from coal assets, said Ross Hammond of the Sunrise Project, a nonprofit that seeks to rally organizations to advocate for climate change.

The U.S. movement, Insure Our Future, has failed to push major American companies to do the same, with a handful of exceptions.

Chubb, the largest U.S. commercial insurance company, said in July 2019 it would stop insuring new coal-fired power plants and phase out coverage of coal mining companies by 2022. Hammond, senior strategist for Insure Our Future, said it’s time for Liberty Mutual, AIG, and the rest of the U.S. industry to end their support for fossil fuels.

Stringer said he was acting on behalf of the New York City Employees’ Retirement System, Teachers Retirement System of the City of New York, and New York City Board of Education Retirement System.

The retirement systems held about $155 billion in assets as of February and are substantial investors in all three insurance giants. The systems divested from coal in 2015.

Stringer said the insurers’ coal investments are incompatible with their obligation to protect their clients from harm, including any disasters stemming from climate change, and their responsibility to protect and create long-term shareholder value for investors like the New York City Pension Funds.

Coal accounts for about 40% of global carbon emissions, despite sharp downturns in consumption in the U.S. and the EU, Stringer said.

“The science is clear: Coal is polluting our air, water, and ecosystem,” he said. “Continuing to invest in coal projects will only create greater financial risk, potential liability, and future cost-burdens in the short and long term.”

Long-Term Strategy

Liberty Mutual didn’t comment on Stringer’s letter, but in an email said it is taking action to reduce carbon emissions.

“Environmental sustainability has been a key focus for us for some time, and we have a long-term strategy of decarbonization and investment in renewable energy,” the company said.

Last year the company announced a global policy on coal underwriting and investment, and recently it released an inaugural “environment-social-governance” report to “further embed responsible investment and risk management policies into our decision-making.”

Berkshire Hathaway and AIG didn’t immediately respond to Bloomberg Law’s requests for comment.

Industry Group Opposition

Matt Dempsey, a Denver-based spokesman for Divestment Facts, a project of the Independent Petroleum Association of America, said such campaigns aren’t effective.

“How much time and resources should go to a political agenda that really won’t address climate change at a time when the county needs resources for public health and safety?” he said.

“Divestment campaigns are not about reducing climate change; they’re about demonizing the industry,” he said. “It’s better to work collaboratively to bring down emissions in a way that works for everyone, instead of creating a lot of noise and headlines to look like you’re doing something on climate change.”

But local government action, like a resolution approved in February by the Boulder County board of commissioners, “sends a signal that local governments are paying attention to where they’re putting their money,” said Micah Parkin, executive director of 350 Colorado, an environmental group focused on addressing climate change.

“We’re expecting insurance companies to be more ethical about where they’re putting our public funds,” she said. “If insurance companies are investing on fossil fuel companies and products, they’re making local governments part of the climate problem.”

The National League of Cities doesn’t have a policy on municipal divestiture campaigns, Brooks Rainwater, senior executive and director of the League’s Center for City Solutions, said.

“Many cities are going to 100% carbon-neutral goals,” he said. “Issues like these are definitely taking hold.”

To contact the reporter on this story: Tripp Baltz in Denver at abaltz@bloomberglaw.com

To contact the editors responsible for this story: Gregory Henderson at ghenderson@bloombergenvironment.com; Renee Schoof at rschoof@bloombergenvironment.com

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