Third company pulls out of Net Zero Insurance Alliance
German reinsurer Hannover Re becomes latest giant to pull plug on NZIA membership.
Andrew Putwainposted on Monday, April 24, 2023
The Neto Zero Insurance Alliance (NZIA) took another hit last week when German re/insurance behemoth Hannover Re decided to ditch its membership to the climate change action group.
It is the third company to do so in the past few weeks, with fellow German reinsurer Munich Re cutting its membership after citing fears over an antitrust rule breach due to the group’s market share.
Zurich Insurance has also left the group, saying it would be able to pursue its net zero goals more effectively as an independent entity.
Hannover Re gave no specific reason for its departure from the beleaguered group.
The company saw a group net income of €1.41 billion in 2022 and said it expected this number to increase to at least €1.7 billion in 2023.
What’s causing the departures?
Hannover Re said in an email statement to Reuters that it was leaving “after careful consideration”, but gave no further details.
"Opportunities to pursue decarbonisation goals in a collective approach among insurers worldwide without exposing ourselves to material antitrust risks are so limited."
Likewise, in its press release on 31 March, Munich Re was equally cagey about its departure and possible backlash, with the company maintaining 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.”
The move could have a variety of drivers, such as the pushback against ESG and other sustainable investment activities in the US over the past year, especially at the state level.
It is unclear, however, why the departures are coming predominately from German-speaking regions of Europe – one of the strongest regions globally for decarbonisation and other ESG activities. Case in point: Germany recently shut down all of its nuclear reactors.
The German financial regulator, the Federal Financial Supervisory Authority (BaFin), recently published its views on collaborative engagement around ESG measures, which could have also swayed matters.
The paper, written in German, said that acting in concert for heightened ESG impact was effective but “could have unintended consequences”. It gives several examples of where ‘working in concert’ could be a cause for concern.
“Investors often consult with each other on this in order to be able to represent their positions in terms of sustainability as effectively as possible."
“Sustainability plays a central role for many institutional investors. The topics of [ESG] are high on the agenda when speaking to representatives of the companies in which they invest,” said the paper (translated). “Investors often consult with each other on this in order to be able to represent their positions in terms of sustainability as effectively as possible. Such an exchange can extend far and wide, from the non-binding discussion of sustainability issues to agreeing on a joint approach in the corporate bodies of a company.”
“The problem with this: Such agreements can meet certain attribution criteria of the Securities Trading Act (WpHG) and the Securities Acquisition and Takeover Act (WpÜG). This can have far-reaching organisational and financial consequences.”
This could have arguably spooked members and could cause further departures from current German NZIA members.
NZIA also launched its first Target-Setting Protocol at the World Economic Forum’s Annual Meeting in Davos, which was widely publicised by several members, earlier this year.
What is the NZIA?
The NZIA sits under the United Nations Environment Program Finance Initiative (UNEP FI) and was developed under the umbrella activities of COP26 in Glasgow in 2021.
The NZIA is 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 underwriting-linked emissions.
The NZIA had around 30 members at its peak. Comprised of some of the world’s largest re/insurers, NZIA represents a significant percentage of world premium volume globally, which formed part of Munich Re’s publicly listed reason for leaving.
Insurers commit to transitioning 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.