Shareholder support of climate-related resolutions filed at insurance firms has underwhelmed so far this proxy season.
The outcomes of recent climate-related shareholder proposals filed at US insurers this year demonstrate that insurers and their largest shareholders “are failing this proxy season’s climate test”, according to Mary Sweeters, Senior Strategist at campaign group Insure Our Future.
Climate-focused resolutions filed at Chubb, The Hartford and Berkshire Hathaway all received less support from shareholders compared to previous years, which is viewed as a reflection of ongoing political pressure from the anti-ESG movement, as well as a continued lack of ambition from the sector to make and follow through on climate commitments.
“In the same month that the World Meteorological Organization announced that average global temperatures may temporarily exceed the 1.5°C warming threshold in the next five years, insurers gave excuses for not taking action that responds to the moment of the climate crisis, and major shareholders failed to decisively support proposals that would point insurers on the right path,” Sweeters told ESG Investor.
“As the climate emergency escalates, it is a slap in the face to communities bearing the costs of pollution, extreme weather events, and less insurance availability as insurers flee from areas affected by climate impacts but remain loyal to the fossil fuel companies who have caused the problem in the first place.”
A step backwards
Andrea Ranger, Shareholder Advocate at investment advisory firm Green Century Capital Management, said the results of climate votes at US insurers so far this season have been “all over the map”.
US shareholder advocacy group As You Sow re-filed the same climate proposal at Berkshire Hathaway as it did in 2022, requesting the firm issues a report addressing if, and how, it intends to measure, disclose and reduce the greenhouse gas (GHG) emissions associated with its underwriting, insuring and investment activities in line with the goals of the Paris Agreement.
Last year, the resolution received 25.9% of the overall vote, but received 22.8% this year.
Green Century Funds filed a proposal asking The Hartford to phase out underwriting risks associated with new fossil fuel exploration and development projects. The proposal received support from 9% of shareholders, which Ranger noted is the same result as last year.
Chubb challenged Green Century Funds’ climate proposal, arguing to the US Securities and Exchange Commission (SEC) that it was an attempt at micromanagement. The proposal called for the company to adopt a policy for the time-bound phase-out of underwriting new coal, and oil and gas projects.
The SEC ruled in favour of Chubb’s request.
However, As You Sow’s proposal – which asked Chubb to publish a report disclosing 1.5°C-aligned medium- and long-term decarbonisation targets for its underwriting, insuring and investment activities – was tabled. It received 28.9% of the shareholder vote, yet a similar proposal received a 72.2% majority the previous year.
Ranger noted the dramatic decline in support was “perplexing”.
“We might expect some decrease because Chubb announced its new underwriting restrictions for conservation areas and a programme to stop methane leaks and flaring, but that’s not the same as quantifying emissions and contemplating a net zero goal,” she told ESG Investor.
However, following conversations with the company, Ranger noted that “Chubb recognises the need to quantify Scope 3 emissions, so it definitely did get the message last year”.
Green Century Funds has filed the same proposal at Travelers, which will be voted on at its AGM today (24 May).
“The insurers’ current climate policies do not adequately mitigate emissions related to their underwriting, do not sufficiently reduce exposure in the short term to the myriad of climate risks to insurers, and do not demonstrate a long-term approach to effectively managing these risks,” said Sweeters from Insure Our Future.
“The insurers who faced shareholder proposals this proxy season are still lagging behind; they all have climate policies that still allow for underwriting new oil and gas projects, as well as companies exploring for and developing new fossil reserves that are incompatible with a 1.5°C pathway.
“At a time when there is a clear call for financial institutions to stop enabling fossil fuel expansion, underwriting new fossil fuel projects is totally unacceptable.”
Spooked or reluctant?
Ariel Le Bourdonnec, Insurers and Reinsurers Campaigner and Analyst at NGO Reclaim Finance, said increased caution from insurers and their shareholders has been partly driven “by the anti-ESG backlash in the US”.
Ranger from Green Century added that “insurers are terrified of the political climate in the US right now”, but that the ESG movement “is simply factoring in material ESG risks that investors are concerned about”.
There are concerns that the anti-ESG movement has spooked US insurers to step back from climate groups and initiatives.
Swiss Re became the latest insurer to exit the Net-Zero Insurance Alliance (NZIA), following Munich Re and Zurich earlier this year, either citing concerns around anti-trust laws or not giving a reason at all.
“What is most important is that these firms stick to the commitments they made while part of the alliance,” Le Bourdonnec said.
“It’s nonetheless a pity that they can’t sit around the same table [as NZIA members] to strengthen their commitments and the overall climate-related progress made by the insurance industry.”
Insurers need to better recognise that failing to address climate change is a huge business risk, Le Bourdonnec added.
“It makes good business sense for insurers to make ambitious climate commitments, as the impacts are impacting profitability,” he said.
A 2020 report from insurance broker Aon noted that natural disasters caused US$3 trillion in economic damages between 2009-2019, costing insurers US$845 billion, well above the levels seen in the prior decade. Reinsurer Swiss Re said that insured natural catastrophe losses reached around US$110 billion in 2021.
Research also shows that limiting global warming to 1.5°C has the potential to save upwards of US$20 trillion in damages globally, whereas exceeding 2°C could lead to hundreds of trillions in damages globally.
But insurers continue to underwhelm on climate.
According to a report by Reclaim Finance, Lloyd’s of London has not put in place a policy to end underwriting support for fossil fuel expansion, despite having made a net zero pledge. A further report published by the NGO this week noted that, despite their climate commitments, SCOR, AXA, Allianz and Lloyd’s of London provided US$400 million of insurance cover between 2022-23 to Freeport LNG, the second largest liquefied natural gas (LNG) terminal in the US.
“Best practice [for insurers] is to stop underwriting, first and foremost, and second to direct their investments elsewhere – anywhere other than oil and gas expansion,” said Ranger, adding that best practice for investors is to continue engaging with insurers outside of the AGM.
“Shareholders should step up to the plate in the off season and ask insurers for climate policies.
“Too often, the institutional investors say they engage or are ‘in discussions’, but conversation without action is ineffective. And frankly is greenwashing. When they don’t get policies, they can decide to vote against directors [or file] shareholder proposals.”