Recently, the Intergovernmental Panel on Climate Change (IPCC) released its latest report, identifying a rapidly closing window to avoid the direst impacts of the climate emergency. The report set off renewed calls to stop the fossil fuel industry, the dominant cause of carbon emissions, from keeping us on a path to climate disaster.
What’s been largely missing from the conversation is how financial institutions — banks, insurance companies and asset managers — are covertly backing the fossil fuel industry. These players must pull their money and business from the planet’s biggest polluters if we are to stay within a 1.5 degrees Celsius (1.5°C) limit to planetary warming. Without them, fossil fuel operations are simply not financially viable.
Every fossil fuel company needs financing and insurance coverage to build, expand and maintain its dirty operations. Banks, insurers and asset managers provide this service, functioning as the backbone of this climate-wrecking industry. Since the Paris Agreement was adopted in 2015, the world’s 60 largest banks have financed fossil fuels to the tune of $3.8 trillion.
These institutions are driving the climate crisis by investing in fossil fuel projects and companies. Taking the IPCC’s conclusions seriously means understanding that financing and insuring emissions actually fuels the climate crisis. The report is clear that even fractions of a degree matter. When a bank funds new emissions or an insurer’s coverage helps keep existing sources operational, they increase the likelihood and magnitude of future climate impacts.
United Nations Secretary General António Guterres sums up the implications of the IPCC report for financiers and insurers: “This report must sound a death knell for coal and fossil fuels, before they destroy our planet…. There is no time for delay and no room for excuses.” Guterres also specifically calls on financial institutions to “align their portfolios with the Paris Agreement.”
To stop contributing to the crisis, financial institutions must phase out lending, investments and underwriting in fossil fuels at a pace that matches the urgency of the problem. Many of them have delayed meaningful climate action by making pledges to reach net zero by 2050 without setting interim targets, distracted the public by focusing on disingenuous carbon “intensity” targets, or made excuses for their lack of any meaningful climate commitments.
The insurance industry has fallen woefully short in cutting support for fossil fuels despite being particularly vulnerable to the costs of disasters driven by climate disruption. Swiss Re, one of the world’s largest reinsurers (a company that provides insurance for other insurers), estimated insured losses from natural disasters for the first half of 2021 at $40 billion, the second-highest on record.
Insure Our Future is a global coalition of environmental, consumer protection and grassroots organizations that collectively pressures the insurance industry to end its support for fossil fuels. Since the Insure Our Future campaign launched in 2017, at least 30 insurers have restricted their coal underwriting, and some have committed to phase out coverage for the sector entirely.
Still, these policies all urgently need improvement in light of the new IPCC report. The insurance industry as a whole has failed to reduce its support for oil and gas, with only two major insurers adopting an oil and gas underwriting phaseout plan (Suncorp and Generali). Meanwhile, some insurers have made zero commitments to end or limit underwriting and investments in coal or any other fossil fuel, with U.S. insurers lagging behind the rest of the world.
Among them is AIG. The field of insurers for coal is narrowing, and the coal sector is feeling the squeeze in the form of rising premium costs and difficulty obtaining insurance for some controversial projects. This leaves AIG increasingly isolated as one of the few major insurers left to insure massive new coal projects. Yet, coal makes up less than 1 percent of AIG’s underwriting portfolio — so what is it holding on for? In the company’s first ever “Environmental, Social, and Governance Report,” the insurance giant still fails to adopt a single policy to curb its support for fossils.
Instead, AIG reaffirms its continued underwriting for and investments in fossil fuels in its “environmental” report. The company’s reasoning? AIG says that it is not in the “best interest of our stakeholders and the general public … to abruptly reduce or stop insurance access to clients that are heavy users or producers of fossil fuels.” However, increasingly urgent predictions of worsening climate impacts show that rapidly phasing out fossil fuels is absolutely in the public’s best interest.
As evidence of “climate action,” the insurer touts its commitment to “net zero operations by 2050.” On paper, AIG could achieve “net zero operations” within a year by purchasing carbon offsets. Even AIG admits that it does not “consume large amounts of natural resources for the operation of our business relative to many of the businesses we insure.” The carbon impact of AIG’s buildings is trivial relative to its impact as a top 3 insurer of oil and gas that has invested $26.8 billion in fossil fuels.
Meanwhile, AIG has said it’s not very concerned about paying for worsening climate damage because, as the harms increase, it can just raise prices or drop coverage. AIG is putting us all at risk by supporting the fossil fuel industry and planning to jump ship when the damage gets too intense.
The campaign calling on AIG to drop fossil fuels has been ramping up in the past few months. In February of this year, Indigenous youth peacefully occupied AIG’s Vancouver office over its involvement with the Trans Mountain pipeline. Climate groups have held actions at its New York headquarters, and activists have emailed and called company executives thousands of times. One of the insurer’s major shareholders, Legal and General Investment Management, recently dropped AIG for continuing to underwrite coal and failing to disclose its financed emissions. Yet all AIG has done is pat itself on the back for its laughable “climate action.”
The IPCC report provides a stark picture of our future if financial institutions stick to the status quo and continue backing fossil fuels. They must change the way they operate and stop mindlessly prioritizing profits over communities. Financial institutions might try to ignore the increasingly urgent calls for change, but as UN Secretary General Guterres said, there is no time for delay and no room for excuses.
The future before us if we continue on the same course is dire. Financial institutions must embrace the paradigm shift and take rapid, aggressive action to decarbonize our economy. There is no livable alternative.