Blood in the Water for Anti-ESG Sharks

Fear of breaking anti-trust laws risks shaking the foundations of GFANZ sub-alliances in the wake of NZIA exodus.

The US anti-ESG movement is expected to ramp up pressure on other alliances falling under the Glasgow Financial Alliance for Net Zero (GFANZ) umbrella, following insurers’ mass exit from the Net-Zero Insurance Alliance (NZIA), according to industry experts.  

“Now that [the anti-ESG movement] has seen how easy it was to get these supposedly climate-committed insurance giants to ditch NZIA, they no doubt scent blood in the water and will only ramp up their attacks,” Paddy McCully, Senior Analyst on Energy Transition at NGO Reclaim Finance, told ESG Investor. 

In recent weeks, NZIA has lost almost half of its members, including five of the eight founding signatories, such as AXA and Allianz.  

McCully said the mass exodus is down to increasing pressure from opposing US Republican politicians.  

On 15 May, over 20 state attorneys-general sent a letter to NZIA members, asking for information on their insurance business, their relationship to the alliance and commitments made. The letter argued that members risk violating anti-trust laws. Recipients were given a month to respond.  

John Neal, CEO of Lloyd’s of London – which quit the NZIA last week – told Reuters the alliance needs to make its membership rules less prescriptive, or it will fall apart.  

However, the NZIA’s existing three-pronged target-setting framework has previously been criticised for being too soft, with loopholes in definitions and a lack of ambition.  

Andrew Otis, Partner at law firm Kramer Levin, said that the NZIA “still serves the purpose” of signalling to insurance company stakeholders the seriousness of a member firm’s commitment to achieving alliance-aligned goals beyond individual firm commitments.  

The NZIA is part of GFANZ, which was set up by UN Climate Envoy Mark Carney, and requires members to commit to reducing their greenhouse gas (GHG) emissions in line with the Paris Agreement.  

“The question is whether GFANZ and its alliances will show some spine and stand up against the attacks and ratchet up the level of ambition they expect from their members, or whether they will meekly fold to protect their profits,” McCully said.  

Insurance firms must not use the US anti-ESG campaign as a justification for climate inaction, warned Peter Bosshard, Global Coordinator for the Insure Our Future Campaign.  

“We are concerned that [insurer] laggards may now use this pressure as an easy, cheap excuse.” 

Maria Lettini, CEO of the US Sustainable Investment Forum (US SIF), said that insurers are very exposed to climate-related physical and transition risks, which gives firms “a unique vantage point to help drive climate change solutions”. 

At the time of writing, the NZIA has 17 members.  

Anti-trust fears 

There are ongoing concerns that financial institutions joining GFANZ alliances risk breaking US anti-trust laws. 

“The opportunities to pursue decarbonisation goals in a collective approach among insurers worldwide without exposing ourselves to material anti-trust risks are so limited that it is more effective to pursue our climate ambition to reduce global warming individually,” said Joachim Wenning, CEO of Munich Re, following the firm’s exit from NZIA in March.  

Marc Shrimpling, Partner in law firm Osborne Clarke’s UK competition and trade practice, said: “It is perfectly acceptable for companies to agree emissions targets or other sustainability goals, so long as the companies remain free to act independently in terms of how they get there.”  

Anti-trust regulators will only intervene if they sense firms are more inclined to select products or services based on climate credentials, thereby “flattening competition by preventing companies from standing out in the crowd”, he said.  

Some ex-NZIA members, like Zurich, are still members of the Net Zero Asset Owner Alliance (NZAOA).  

The Net Zero Banking Alliance (NZBA) has faced similar pressure, with six of its US members subpoenaed by state attorneys-general on the grounds of their participation in the alliance.  

CEOs of Net Zero Asset Manager initiative (NZAM) members have said they can fulfil their fiduciary duties in the US while meeting sustainability-focused commitments, despite the anti-ESG movement.  

Fight or flight 

Both Bosshard and McCully theorised that the reason why insurers are the ones predominantly buckling under the pressure could be due to the higher concentration of firms in the insurance industry. 

“Reinsurance, in particular, is dominated by a small number of major players,” said McCully.  

“The fact that several insurers pulled out of the NZIA while staying in the NZAOA suggests that they see the risks differently for different alliances.” 

Shrimpling from Osborne Clarke has warned financial institutions to keep current developments “under review”, noting that competition and anti-trust laws “can bite even when companies claim to be pursuing a legitimate objective”.  

The NZIA told ESG Investor that it does not comment on the individual and independent actions of its existing or ex-members.  

The United Nations Environment Programme (UNEP) said that “every company has the freedom to join or withdraw from the NZIA at any point in time and for any reason”, adding that “UNEP will continue to strengthen and deepen its collaborative work with the insurance industry and key stakeholders to advance net zero insurance thinking and practices globally”. 

A NZAOA spokesperson told ESG Investor that the NZIA and NZAOA are separate and distinct initiatives, and that the alliance remains “firmly committed” to supporting an “economic transition to net zero by 2050”.   

“The NZIA defections are helping the Republican attorneys-general to achieve their policy goal of lessening incentives for companies to reduce emissions and their political goal of saying that they struck a blow against ‘woke’ capitalism,” said Otis from Kramer Levin. 

“They will likely continue to pursue these tactics and arguments until they are challenged and defeated in court, or until it is not in their political interest to do so.” 

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