This article is part of our latest DealBook special report on the trends that will shape the coming decades.
Insurers have a uniquely powerful role in addressing climate change — and one that may help determine the coal industry’s very existence in the next two decades, if not sooner. Insurers are not only among the largest institutional investors, their ability to withdraw insurance coverage can hinder a company’s operations.
Insurance companies also pay when climate change causes natural disasters, which cost the industry $82 billion last year, according to the insurer Munich Re.
AXA, the French insurance company, has eagerly leaned into its levers for reducing carbon emissions. In 2015, AXA became the first insurer to start divesting from coal, and it is now chair of the Net-Zero Insurance Alliance, a pledge signed by eight of the world’s largest insurers and reinsurers who have committed to have underwriting portfolios with net-zero greenhouse gas emissions by 2050.
The majority of the signatories are European insurers. U.S. insurers, including AIG and Berkshire Hathaway, have not agreed to the terms. AXA’s chief executive, Thomas Buberl, has made it his mission to change that.
You were perhaps the first to embrace insurers’ role in climate change. What drove your decision?
We saw this whole question around climate transition very early on because as an insurer, you basically have two perspectives: You have the investment perspective, and you’ve got the underwriting perspective. And from the underwriting perspective, you also see, later on, the claims. And what we’ve seen from very early on was: Yes, investment in coal, and so on, seems to be quite an isolated and attractive investment — but then when you blend in the claims side, what happens to natural catastrophes and companies that we insure in terms of flooding, fires and so on? What happens to the patients that we have with their health? The equation doesn’t work.
Why do you believe that underwriting is the key to driving out the coal industry?
Even if all the insurers say, “We don’t invest in coal anymore,” even if all the banks say, “We don’t invest in coal anymore,” there is still private individuals who say, “I’ll give you the money for coal.” Whereas on the insurance side, if you don’t have the insurance, you will have no financing — whether it’s private, public, from an insurer, from an asset manager, whatever.
And so we said, “Look, by bringing the majority of this market together, because [there’s] only let’s say 12, 15 actors globally who do this business — if we get together and if we agree on principles of what to do we still insure and what do we not insure anymore — without violating any antitrust rules — we will create a very powerful coalition to really drive this market out.
There are a couple ways in which the government could step in on this issue. A regulator could integrate capital charges for unsustainable investments. Or it could take a taxonomy approach for green activities like it has in the European Union. Should, or will, that happen in the U.S.?
Look at other areas like diversity quotas. Why have they arrived? Because companies haven’t done their job early enough. Being proactive and making sure that there is enough diversity on their boards, on their management teams and so on. And so I’m always a believer of the basis that you don’t need government if you have sorted it out yourself. Unfortunately, it doesn’t always happen. But in this case, we are still early enough I think, to sort it out ourselves.
You’ve met personally with executives of major insurers to encourage them to sign the pledge. When you talk to them, what is their biggest concern?
It’s a question of, if I exclude customers, what does it mean for my relationships, what does it mean for my business. Because it is true, all those industries in question on the insurance side, the underwriting side, are very large customers.
When we went out of coal investment — I had a whole speech from my investment team. “Are you crazy? You will never find investments that have the same yield.” When I look now, five years later, we have allocated over $20 billion — our aim is now to go even further to $24, $25 billion — we have allocated that money into green investments. The yield is not so different to what we would have seen in the coal sector. The same was true on the underwriting side. We had to let go of a significant amount of business by not ensuring corporate use anymore. But have you seen any dip in our gross numbers? No, you haven’t.
In 20 years, will major insurance companies be underwriting coal?
You don’t need to wait 20 years for that.
Will they be out in five years?
No, but if you take us: We are completely out of coal in O.E.C.D [Organization for Economic Cooperation and Development] by 2030 and non-O.E.C.D. by 2040. I do believe that also, in non-O.E.C.D. countries, the pressure is rising every day. So those dates will probably be brought forward. I would say in 10 years from now, you will be mostly out.