Renewable sources present a wealth of fresh possibilities.
More than $500 billion is still invested in the fossil fuel industry by insurers, with just 16 companies accounting for more than half of that total. These expenditures, however, may decrease within the next decade as renewable energy grows in popularity, research, and funding.
“There is probably no industry that is more connected to the impact from and the impact to climate than insurance,” says Steven Rothstein, managing director of Ceres Accelerator for Sustainable Capital Markets.
“The policies they write, home insurance, property insurance, life insurance, health insurance are impacted by climate, both the risks and the opportunities,” Rothstein added.
Rothstein discussed the continued large investments in fossil fuels and the higher prospects in the renewables sector, both now and in the future, in an interview with Insurance Business.
As the saying goes, “There should be a graduated decline” in fossil fuel investments.
Over $250 billion is invested by 16 insurance companies in fossil fuels. These companies are: Berkshire Hathaway ($20.9B), State Farm ($30.9B), TIAA ($27.7B), New York Life ($26.2B), American International ($24.2B), Metropolitan ($17.5B), Northwestern Mutual ($25.8B), Prudential ($$14.1B), Mass Mutual ($10.2B), Allianz ($15.2B), Lincoln National ($18.9B), Nationwide ($10.0B),
Insurance companies that focus on property and casualty have the strongest linkages to fossil fuels because of the much shorter time it takes to see a return on investment.
Divesting in fossil fuel assets is not as easy as one may imagine, despite the fact that the globe has seen an increase in climate change-related tragedies.
Despite what you may have heard, “people like progress, they just don’t like change,” as Rothstein put it.
There has been substantial progress in the production and advancement of renewable energy, but not enough to completely eliminate the need for fossil fuels at this time.
The maturity of these bonds spans a wide time frame, from five to twenty years; which suggests that some of these purchases could have been done more than a decade ago.
However, “we’re not suggesting that there should be a complete divestment today of all fossil fuel from the insurance portfolios,” Rothstein emphasised. However, “a gradual decrease is warranted.”
Businesses with these holdings that wish to divest—whether out of ethical considerations or the desire to take advantage of new financial possibilities—should develop a strategy for making the change.
Rothstein advised that a more sustainable and energy-conscious portfolio be built up over the course of five years, with additional goals to be added in increments over that time.
Financially or from the standpoint of the client, “we don’t think investing in a new oil well, new field, new pipelines — that’s new capacity, and then you need to get its return over 20 to 30 years — is good,” Rothstein said.
Rothstein thinks that other, broader climate-related challenges in the insurance business also need to be addressed, despite the Ceres report’s exclusive focus on investments in pure fossil fuels.
As the temperature continues to rise, “people are literally dying of heat,” he remarked.
In addition, there needs to be more of an effort made to protect customers from other major environmental dangers since heat insurance is so uncommon in the United States.
Exploring Prospects in Alternative Energy
Opportunities abound, thanks to the exponential development of alternatives to fossil fuels during the past two decades.
The International Energy Association predicts that by 2026, renewable energy capacity around the world will surpass both fossil fuel and nuclear power capacity.
Rothstein argued that “investments in some of those alternatives” could have a favourable effect while also providing high returns after accounting for risk.
An insurer may include the acquisition of a corporate bond issued by a corporation to finance a treatment plant or other environmentally responsible business in its portfolio.
According to the United Nations, the global economy needs to invest $4–5 trillion annually in cutting-edge technologies like solar panels, wind turbines, and other methods of harnessing renewable energy, all of which require insurance.
Fundamentally, workers are becoming more aware of a company’s social and environmental report card, and this is motivating many to invest in making the world a better place to live.
According to Rothstein’s research, 41% of workers in American businesses have admitted that “if they could find the exact same job in a company that is more environmentally friendly,” they would be convinced to leave their current employer and work for that business instead.
Three-quarters of workers think they are influenced by the company’s reputation.
Since this will shield them from legal action and boost their long-term profitability, investors have shifted trillions of dollars to more ethical enterprises.
