Why are massive re/insurers leaving net zero groups?
Two of Europe’s largest re/insurers have left a climate change action group in recent weeks citing antitrust fears.
Andrew Putwainposted on Thursday, April 13, 2023
In recent weeks, two of Europe’s largest re/insurers left the Net Zero Insurers Alliance (NZIA) due to challenges around accomplishing concrete action and working with large entities – alongside other concerns.
Swiss-based Zurich Insurance Group and German reinsurance giant Munich Re have both announced their departure from the group, citing common difficulties. Comprised of some of the world’s largest re/insurers, NZIA represents a significant percentage of world premium volume globally. It sits under the United Nations Environment Program Finance Initiative (UNEP FI) and was developed under the umbrella activities of COP26 in Glasgow in 2021.
As members of the group, insurers commit to transition their re/insurance underwriting portfolios to net-zero greenhouse gas (GHG) emissions by 2050, consistent with a maximum temperature rise of 1.5°C above pre-industrial levels by 2100 – which ultimately contributes to the implementation of the Paris Agreement on Climate Change.
The NZIA is also part of the Glasgow Financial Alliance for Net Zero (GFANZ), which is an umbrella group of sectors pushing to decarbonise their investments. Recently, NZIA members have faced growing pressure from campaigners to move faster in cutting emissions linked to their underwriting.
Departures from the NZIA
Munich Re left the group in March, and Zurich left in early April.
In a now-removed press release on its website, Zurich said it was “proud” to be a founding member of the alliance in 2021. The company also said it would stay a member of GFANZ.
Earlier this year, NZIA launched its first Target-Setting Protocol at the World Economic Forum’s Annual Meeting in Davos, which was widely publicised by several members, including Zurich
In its statement, the insurer said that after establishing this standardised methodology for tracking and disclosing emissions, it wanted "to focus [its] resources to support [its] customers with their transition".
In a press release on 31 March, Munich Re possibly predicted a backlash to their move to leave the group, with the company saying it was still committed to its climate change goals.
“In our view, the opportunities to pursue decarbonisation goals in a collective approach among insurers worldwide without exposing ourselves to material antitrust 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 in the statement. “Our climate commitment is unwavering. We follow scientific recommendations.”
Despite this, media outlets jumped on a potential anti-trust breach from the NZIA as a reason for recent departures.
The big-name dropouts follow a series of companies in other areas leaving climate change action groups in banking, consultancy, and asset management – with many citing their desire to work independently to achieve climate goals.
“We understand that the announcement to discontinue the NZIA membership might seem unexpected from an external perspective, but we weigh our participation in organisations.”
Sustainable Fitch, the rating agency’s ESG arm, said that said Munich Re’s decision to discontinue its membership will not affect the ESG Entity Rating of ‘2’. This rating reflects the company’s good ESG performance and the integration of ESG considerations into its business, strategy, and management.
Uta Apel, a spokesperson for Munich Re, told Insurance Investor that the company decided to leave after internal considerations.
“We understand that the announcement to discontinue the NZIA membership might seem unexpected from an external perspective, but we continuously weigh our participation in external organisations and their ongoing alignment with our internal evaluation and risk assessment,” she said.
Apel reiterated comments from the original release without specifying what antitrust breaches were being referenced.
"The antitrust risk is significantly lower in our view for Munich Re’s contribution as an Asset Owner."
NZIA’s website stipulates that “[an] antitrust workstream has been established to ensure compliance with antirust/competition laws”. It said this action is supported by the NZIA members’ legal teams and external legal advisors. “This workstream is engaging with competition authorities to support the work of the NZIA,” the website added.
Munich Re’s Apel also highlighted the other industry bodies that the insurer still works with – which could offer more effective achievements, she said. “As the combined market share of the alliance members is much lower in the Net Zero Asset Owners Alliance (NZAOA), also the antitrust risk is significantly lower in our view for Munich Re’s contribution as an Asset Owner. We remain committed to our membership in the NZAOA.”
NZIA highlights its wide scope of participating companies and that a significant percentage of world premium volume globally in insurance is written by its members on its front page - meaning that Munich Re would have long been aware of this.
It could also raise the question of whether other groups - especially those that Munich Re belongs to - that involve companies that have a large amounts of market share could fall under this view of antitrust.
Wider net zero context
The wider background for the changes reveals a fractured market in the ESG/sustainability space for insurers. In January, several climate change and net zero industry figures spoke about the laborious processes required to move the dial on net zero at Insurance Investor’s Europe industry conference.
Wendy Walford, Head of Climate Risk at Legal & General, said that because the scale of the net zero challenge is so immense – and exact guidelines can often be ambiguous – it was important to find the right type of investments, assess new asset classes, to ensure that insurers are supporting the solutions in a prudent financial manner.
In the US, the lag on ESG-related changes remains – despite a supposed effort to ‘catch up’ being heralded for several years. Last year, US-based financial companies said the end of President Donald Trump’s time in office and Joe Biden’s election would likely see ESG kick into overdrive in the country.
"The investor base in some parts of North America prefers less ESG engagement, whereas in Western Europe investors are more sensitive to ESG or sustainability issues.”
In late 2022, Fitch Ratings released its report “Global Insurance Through an ESG and Sustainability Lens”, which said their research of insurance signatories of voluntary ESG-related principles – such as the UN Principles for Responsible Investment (with over 150 insurer signatories as asset owners, accounting for more than $17 trillion in assets under management at the end of 2021) and the UN Environmental Programme Principles for Sustainable Insurance (PSI) – showed a notably low North American representation compared with Western Europe, APAC and Latin America.
“This may reflect that the investor base in some parts of North America prefers less ESG engagement, whereas, in Western Europe and parts of developed-market APAC, investors are more sensitive to ESG or sustainability issues,” said Fitch in its report. “Those insurers more susceptible to stakeholder pressure will also tend to have more advanced ESG integration approaches, policies, and related disclosures – such as the largest internationally active insurance groups (IAIGs), whose global underwriting and investment footprints lead to greater exposure to ESG issues.”
The report added that, “such groups are more likely to develop detailed underwriting policies and investment mandates that incorporate measures like ESG investment screening and restrictions.”
This trend has been exacerbated over the past six months with Republican-controlled US states pushing ahead with anti-ESG stipulations that have seen it wrapped up in the so-called “culture wars” in the country.
This factor isn’t as present in Europe – with most insurers receiving almost universal state backing for climate change and ESG goals – but because many companies operate on both sides of the Atlantic, pressure could be felt.