Earlier this week, one of the biggest re-insurance companies in the world started implementing a policy reflecting the growing risk around new coal projects. Swiss Re announced on Monday it would no longer insure companies that get 30 percent of their revenue or generate 30 percent of their power from coal burned for energy (known in energy parlance as ‘thermal coal’).
It’s yet another sign that economics are turning against coal. The re-insurance giant, which underwrote $35.6 billion in non-life insurance contracts in 2016, is the latest in a string of re-insurers pulling back from one of the dirtiest sources of power generation on the planet. These companies aren’t doing it from the bottom of their hearts, though. This is about cold, hard cash and actuarial tables.
Swiss Re’s policy, which was announced in 2017, went into effect on Monday. The company said in its announcement that it “supports a progressive and structured shift away from fossil fuels.”
It follows on a 2016 policy that limits other forms of investments in coal mining and companies that generate at least 30 percent of their electricity from coal. Other insurance companies that stopped funding coal projects in various forms include Allianz, Dai-ichi Life Insurance, and Scor. Another giant in the business, Munich Re, has decided to keep funding coal projects despite being pressured by investors not to.
“This decision comes now after Swiss Re signed in December 2015 the Paris Pledge for Action to affirm our support for the Paris Climate Agreement,” a company representative told Earther. “With the decision to limit our exposure to thermal coal and develop a carbon risk model, Swiss Re established a consistent approach also on the liability side.”
Coal powered the Industrial Revolution, but its role in causing climate change has indeed turned it into a liability in two ways.
The first is that coal is a huge source of carbon pollution, with nearly double the emissions of natural gas (and infinitely more than zero-emissions renewables). As that pollution piles up in the atmosphere, it raises the risk of more extreme weather that can cost insurers a pretty penny.
Longer term climate impacts, like sea level rise, will only make insuring coastal areas a more costly endeavor. A recent Union of Concerned Scientists report showed that by 2045, upwards of 300,000 coastal homes worth roughly $117.5 billion will be at risk of chronic flooding. That’s a lot of potential losses insurers will have to pay out, and it’s only one type of catastrophe in one country. Why would insurers pay to prop up one of the industries that’s most responsible at the risk of turning their balance sheet upside down?
There’s also the issue of how the world’s energy mix will have to change in order to meet the Paris Agreement goal of limiting warming to 2 degrees Celsius. As of now, there’s simply no room for coal to exist in that world. And to keep our climate habitable, the transition away from coal will have to happen very soon. Economics are already causing the necessary shift in some countries, including the U.S. (despite efforts by the Trump administration to turn the coal industry around). The trend is likely to continue here and elsewhere and accelerate in the coming years.
That means coal companies could just walk away from mines and power plants, making them stranded assets and creating losses for insurance companies. In May, California’s Department of Insurance conducted a climate stress test of all insurers with $100 million in annual premiums doing business in the state (h/t GreenTech Media).
“The results of the scenario analysis by 2°Investing is consistent with Commissioner Jones’ Climate Risk Carbon Initiative determination that thermal coal presents long-term financial risks for investors,” the agency wrote in a release announcing the report.