UPDATE: ESG-Bashing Triggers More Defections From Insurer Climate Group

May 25, 2023 by

The world’s biggest climate alliance for insurers has started hemorrhaging members, after Republican attorneys general accused the group of antitrust violations.

On Thursday, French insurers AXA SA and SCOR SE, as well as Allianz SE of Germany, became the latest members of the Net Zero Insurance Alliance to walk out, bringing to seven the number of high-profile defections in less than two months. AXA’s departure is particularly noteworthy, as the firm had chaired the alliance.

Since Munich Re quit the NZIA in late March, citing “material” legal risks, the group has struggled to keep other members from heading for the door. The development prompted the alliance to hold an emergency meeting on Thursday, according to people familiar with the process who asked not to be identified discussing non-public information.

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The escalating anti-ESG campaign in the US and the explicit targeting of NZIA led several members to conclude they were safer outside the alliance, people familiar with the deliberations said. The United Nations Environment Programme, which convened the NZIA in 2021, said Wednesday that the exits should be seen “in light of the recent discussions within the United States.”

Officials from UNEP weren’t immediately available to comment Thursday. NZIA still has 23 members, according to the group’s website.

If NZIA were now to fully implode, it would represent “a huge disappointment for those who wanted a collaborative approach to target-setting,” said Miqdaad Versi, founder of the sustainability practice at Oxbow Partners, a management consultancy focused on insurance, in a LinkedIn post. It would create “a huge hurdle for collaborative efforts in this space,” he said.

Patrick McCully, a senior analyst at nonprofit Reclaim Finance, said that “as NZIA disintegrates before our eyes, we must ask why these huge companies with their hordes of lawyers didn’t see antitrust issues as a major obstacle when they founded the alliance.”

Senior members of the GOP, meanwhile, have cheered the moment. Utah Attorney General Sean D. Reyes said in a statement that he and his colleagues “are encouraged” to see the departures from “an alliance that was focused on a radical environmental agenda over the interests of its clients. We will continue to be vigilant and take legal action where necessary to protect Americans from the dangers of ESG.”

‘Woke’ Finance

The turmoil surrounding NZIA, which at its peak represented about 15% of global insurance premiums, is fast becoming a key moment in the GOP’s campaign to wipe environmental, social and governance metrics off the financial map. High-profile members of the Republican Party have attacked ESG as a “woke” movement that they say is anti-American and dangerous to capitalism. They accuse NZIA of potential antitrust breaches and have linked its work to higher insurance costs and gas prices.

Against that backdrop, NZIA has now lost the majority of its founder members, including Munich Re, which is the world’s biggest reinsurer. All insurers that have quit the coalition say they’ll continue to target sustainable climate goals, just not as part of the insurance alliance. Most also pointed out that they remain signatories to the Net Zero Asset Owners Alliance.

The kind of “intimidation” that led to the splintering of NZIA “is more common in totalitarian regimes then democratic countries and undermines very important sector initiatives badly needed to address the financial costs related to the climate emergency in the US and elsewhere,” said Sasja Beslik, a sustainable finance veteran who’s held senior roles at Nordea Asset Management and Bank J Safra Sarasin, and is currently the chief investment officer at NextGen ESG.

A spokesperson for AXA said it’s important to acknowledge the NZIA’s achievements since 2021. The alliance has been instrumental in developing tools and methodologies for insurers, including non-members, to measure and disclose greenhouse gas emissions associated with underwriting portfolios, the spokesperson said.

A spokesperson for Allianz said that even though the insurer has now quit the NZIA, it “remains fully committed to the success” of the asset owner alliance it chairs.

McCully of Reclaim Finance questioned whether the insurers walking away from the alliance were motivated more “by fears of losing business in the US than real legal jeopardy.”

Lawyers following the situation suggest that the GOP’s arguments would unlikely stand up to scrutiny in the courts. Beslik agrees, and says that firms bowing to GOP pressure risk “losing credibility” with ESG investors.

“It’s a total overreaction and depressing to see how little real commitment departing companies have,” he said.

Insurers are reacting to targeted attacks by the GOP, as the party threatens legal action against firms that coordinate their ESG policies. In a May 15 letter, attorneys general representing 23 US states said they were “concerned with the legality” of the NZIA, and linked the alliance to “record-breaking” inflation.

Reyes, who together with Louisiana Attorney General Jeff Landry spearheaded the letter, said they were motivated by “legal concerns brought about by commitments from NZIA to collaborate with other insurers in order to advance an activist climate agenda.”

Karl Racine, a former attorney general of Washington, DC, who’s now a partner at Hogan Lovells, says that “while the strength of the legal arguments underlying these claims don’t appear to be strong,” the chilling effect of the campaign is real.

NZIA is one of eight sub-groups that make up the Glasgow Financial Alliance for Net Zero. The umbrella organization is co-chaired by Mark Carney, a former governor of the Bank of England, and Michael Bloomberg, the founder of Bloomberg News parent Bloomberg LP.

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