Anti-ESG vs climate activism: How carriers can navigate a culture war
As if forging a path to net-zero wasn't complicated enough for global (re)insurers, recent developments have dumped another thorny obstacle in the way: an increasingly litigious anti-ESG movement in some US states.
The most explicit example of this emerged earlier this year, in a fashion that briefly damaged the industry from a PR perspective, when a carrier exodus from the Net-Zero Insurance Alliance (NZIA) unfolded.
As the UN-convened alliance unravelled, the departing founding members – Allianz, Aviva, Axa, Scor, Swiss Re and Zurich – provided little or no explanation. Had they all been spooked into silence by an ESG backlash in the US?
Munich Re, another co-founder and the first to leave, was the only major Continental carrier to flag the antitrust threat.
The subsequent exit of 19 more NZIA members reflected how an anti-ESG movement had gained momentum and crystallised in a legal, antitrust threat.
Naturally, the exodus precipitated further pressure from climate activists, even though every departing carrier had reiterated ongoing objectives to cut emissions.
Amid an ensuing swathe of media coverage questioning whether this kind of industry collaboration was feasible on net-zero, the underlying difficulty for insurers was clear.
With climate protestors in one corner demanding faster, tougher action to cut capacity for fossil fuel industries, and US legislators on the other, threatening antitrust lawsuits over collective action to cut insurance emissions, (re)insurers were entering precarious territory.
Capitulating to certain demands on either side could just fuel further climate protests from one corner or tempt more litigious warnings from the anti-ESG brigade on the other.
So how can such polar-opposite pressures be managed?
An ESG retirement question
Industry sources said an evolution in the language used across the industry on this topic, plus further transparency from individual firms on their net-zero objectives, may "take some of the canned heat" out of the invective coming from each side.
Many sources said they expect periods of volatility from both the anti-ESG and climate activism quarters as "the new normal" from now on, particularly when capacity starts to fall for fossil fuel activities, or when UN reports depict "scientific, objectively true" examples of climate change.
Depending on their employer's presence in certain US states, sources offered differing views on the extent of the antitrust threat posed across the Atlantic.
Some described it as an obstacle more to specific aspects of industry collaboration rather than individual climate goals, while others were outright dismissive.
This anti-ESG movement is a minor voice. It will be a disruption and it will continue to be an annoyance, but it's not going to change anyone's (net-zero) pathway
A senior source at a carrier said: "This anti-ESG movement is a minor voice in the grand scheme of things. It will be a disruption and it will continue to be an annoyance, but it's not going to change anyone's (net-zero) pathway."
One underwriter suggested that a gradual retirement of 'ESG' as an industry term, with ‘sustainability’ as its replacement, might act as less of a "red rag to a bull" to legislators who remain culturally opposed to ESG.
The underwriter added: "'Sustainability' might have a softer resonance in that it implies we're looking at a more sustainable way of operating, where we're embedding environmental concerns into decisions, rather than being thought of as virtue signalling – or worse, out to cancel somebody."
This sentiment echoes a view espoused by BlackRock CEO and chairman Larry Fink in June, when he set out an intention to stop using ESG entirely, due to its weaponisation by both sides of the debate.
Evolving legal threat
The US backlash against ESG investing has long been in the making, but the main antagonists only shifted their focus to P&C insurance in the early part of this year.
This momentum built up to a cataclysm in May.
At this point, as the NZIA's future looked bleak, a coalition of 23 attorneys general from various US states, including those from Texas, Alaska, Ohio, Kansas and Kentucky, issued a co-signed letter to NZIA members, warning that their decarbonisation targets may not comply with federal and state antitrust laws.
The attorneys claimed that a push to force insurers' clients to reduce emissions rapidly had driven up insurance costs, as well as gas prices – appearing to ignore the economics of inflation.
Reflecting on the extent of the threat from US legislators, one underwriter said it was exaggerated.
"The letter appeared to be disingenuous in its arguments, because the reality is that every insurance company is separate. We don't want to collude, we are acting on behalf of our own capital."
Another source added: "The movement behind this appears to see ESG as some kind of woke initiative. Perhaps they thought the NZIA was an easy target to disrupt and dismantle.
“But the fact remains that, as insurers, there's no end of alliances in which we're still collaborating and through them, we are not setting commercial goals together."
Divergence in a culture war
The antitrust argument reflects just one way in which the legal landscape is evolving in the US.
In another example, a wave of new legislation has swept through largely Republican states to ban investment firms and in some cases insurers from using ESG ratings punitively against companies.
A notable development has been the Senate Bill 833 in Texas, which bans insurers from using an ESG model, score or standard to charge a different rate to a business in the same class for the same hazard. The prohibition applies to all lines of business in Texas, except fidelity, guaranty, and surety bonds and crop insurance.
This is just one example, particular to insurers, of a legislative tidal wave. Pleiades Strategy, a climate risk consulting firm, recently published a study showing that at least 165 bills and resolutions against ESG investment criteria were introduced in 37 states between January and June 2023.
Although only 19 bills from these resolutions have become law so far, sources said the onslaught raised the importance of understanding contrasts between different states. They noted California and New York as slightly more aligned to the trajectory of climate legislation and regulation in Europe.
Developments in each state shown below (hover cursor over each one to see) depict the extent of this divergence.
Yet another dynamic to manage is the amount of climate litigation coming from the opposing side, with pivotal cases launched in the UK and across Europe during the past year.
This publication has previously summarised the extent of litigation volumes, as well as select lawsuits where binding court decisions could have a lasting impact on the London market.
The divergent types of climate litigation among the 2,000 cases that have emerged since 2015 encompass not just greenwashing but also climate mitigation and attribution science – meaning the apportioning of liability and cost to insureds for climate-related damage, according to WTW analysis.
In this litigious landscape, sources said it was becoming increasingly important for carriers to conduct more robust internal interrogations of their public commitments on net-zero, given that activists are searching for anything a high court judge may reasonably conclude is misleading.
Collaborate to navigate
A sustainability leader at one global insurer said that, regardless of where climate pressures are coming from, the industry needs to build and not retreat from alliances, particularly ClimateWise and the Insurance Development Forum (IDF).
The source argued that these two bodies can provide practical tools on climate reporting as well as insight on participation in global sustainability projects, both of which "will be vital in the next 20 years".
One source explained that, as benchmarking between carriers on the climate transition will become more important, membership of ClimateWise will involve annual reporting on individual actions for the transition.
This will enable comparisons with peers and the ability to report on the overall progress made by the ClimateWise community, thereby building on the transparency of how carriers are changing their entire organisations.
With the NZIA depleted, sources said ClimateWise, the IDF, the Net Zero Asset Owner Alliance (NZAOA) and the Lloyd’s-convened Sustainable Markets Initiative Insurance Task Force will likely be the more important alliances. Sources noted the importance of the NZAOA in setting protocols for transitioning investment portfolios.
On the underwriting side, although the PCAF methodology for measuring insurance emissions was a major piece of work conducted for the NZIA, carriers can deploy it outside of the alliance.
One source also believed that the anti-ESG campaigners have moved on from targeting insurance industry alliances.
"For those guys, I think it was mission accomplished. They went after the NZIA and got what they wanted. Having read their arguments about collusion on insurance pricing though, I think they don't even understand what syndicated risk means."
Appetite for engagement
While the anti-ESG threat appears to have calmed since a crescendo in early summer, activities from climate activists have remained consistent, with Lloyd's targeted the most often.
Protests against insurers and/or Lloyd's have become so frequent they're rarely newsworthy events in themselves. In one of the latest examples, at the end of August, a coalition of six activist groups protested outside the offices of various Lloyd’s members. They were targeting carriers that they claim have refused to rule out insuring the East African Crude Oil Pipeline.
For Simon Tighe, group head of ESG at Chaucer, a key aspect of navigating the dual pressures along the net-zero journey is to recognise arguments from both sides.
"I understand the activist pressure to cut capacity – the world is on fire right now – I get it. However, we also need to accept that we need to enable the flow of investment into the technologies and methods that will remove carbon from the atmosphere, and offsetting emissions, before we can start cutting capacity.
"We've got to recognise that we are at a perilous point for the climate. Urgent action has to be taken."
Another sustainability leader said a challenge emerging from the activist side is that, after having little success in influencing the board decisions of global energy firms, they're trying "to use insurers as a back door to the board”.
"We're stuck in the middle of that, in a perpetual culture war, and it's very hard to work out what we should care about most when looking at the transition plan (of insureds), their emissions, plus our own scope three emissions, amid all that pressure."
Some activists may not agree. They think we should be moving quicker in certain industries and removing capacity, however, we think we need to provide the opportunity to transition into a more sustainable path
Tighe also argued that insurers need to be very clear not just about their intentions around climate, but also how they're trying to deliver on them.
Tighe added: "If you're not living it as a company yourself and setting a higher standard, it's just not going to work. We will only expect our clients to do what we are willing to do ourselves."