The risks facing companies involved with coal

The risks facing companies involved with coal | Corporate Risk & Insurance

The risks facing companies involved with coal

Coal is becoming risky business in today’s environmentally-conscious landscape.

In recent months, campaigners have been piling the pressure on to the insurance industry in particular, urging it to both ditch its investments in the coal industry and to stop providing coverage for companies involved with coal.

Earlier this year, the Unfriend Coal campaign published a report revealing that European insurers have invested more than €1.3 billion (around US$1.32 billion) in Polish coal companies and have signed at least 21 contracts underwriting existing operations and new developments since 2013. In a report, the campaign called out five insurers which it said were the biggest underwriters of Polish coal at the time: Munich Re’s Ergo Hestia, Allianz, Generali, Talanx’s subsidiary Tuir Warta, and PZU.

Some big names have announced policy changes amid the controversy: among them are Allianz, which pledged to stop selling policies to coal companies; AXA, which announced it would stop insuring three major oil pipelines and would quadruple its divestment from coal businesses; and Generali, whose board of directors approved a climate change plan it says will see the company gradually distance itself from coal investments.

Last month, reinsurer Hannover Re adopted a policy that will see it restrict investment in coal – which means that nearly half of the global reinsurance market has now divested from the industry, according to Unfriend Coal. 

Then, last week, Swiss Re announced that it has begun implementing a group-wide policy that will see the insurance giant shutting its doors to businesses with more than 30% exposure to thermal coal. The firm said the decision to come up with a thermal coal policy was based on its commitment to the Paris Pledge for Action, taking on global warming and supporting what it described as a “progressive and structured” shift away from fossil fuels.

Clearly there is a shift going on in the insurance industry. But today, any firm associated or supporting the coal industry faces growing risks – both reputational and legal, according to campaigners.

“Beyond the social, environmental and climate risks associated with the coal sector, it is very risky from an economic and financial point of view to keep investing in companies active in the coal sector,” Lucie Pinson, European coordinator of the Unfriend Coal campaign, told Corporate Risk & Insurance.

“Not only is new renewable energy… becoming cheaper than building or operating existing coal plants, but the coal sector is one of the most exposed to the risk of stranded asset,” she said.

In Europe, we are already seeing what are described as “teenager” coal plants – those built less than 10 years ago – being closed, Pinson said.

The number of coal-related stranded assets will only increase over time, as a total coal phase-out is needed by 2030 in all OECD countries and in the EU, and by 2040 in other countries.

“It is to be expected that the legal risks will also increase with the acceleration of climate change and the amplification of its impacts,” Pinson explained – adding that the insurance industry may be first in the firing line and could face unhappy investors.

“Insurers who fail to stop underwriting and investing in the coal industry could be among the first players to be legally targeted for their climate inaction, whereas they were among the first actors to research and alert on the risks associated to climate changes. Insurers could also lose the support of their own investors which might divest or systematically vote against their board during their annual general meeting.”

 

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