“We won’t provide loans, insurance guarantee, or other services for high pollution and high-energy consumption industries and those damaging the environment,” China’s largest insurer Ping An proudly declares in its 2019 Sustainability Report published at the beginning of March. We want to be “an active global influencer” with regard to climate change, the report announced.
Those statements follow on from a series of climate-focused responsible investment announcements last year. In 2019 the company was the first Chinese insurer to sign the UN Principles for Responsible Investment, join the Climate Action 100+ investors group, and adopt a number of criteria under which it would no longer insure coal projects.
Ping An’s shift away from coal is part of a larger trend in the global insurance industry. Since 2017, 19 leading insurers have ended or limited their insurance services for coal projects and expanded their renewable energy business instead. More than 30 have also divested their assets from the coal industry. With Allianz, AXA, Generali, Munich Re, Swiss Re, and Zurich, the early movers include many of the world’s largest insurance and reinsurance companies. Ping An is the first Chinese insurer to join the pack.
Taking action on climate change is part of good corporate citizenship. Burning coal is the largest source of CO2 emissions, and UN Secretary General Antonio Guterres has repeatedly called on governments not to build any new coal power plants from 2020 onwards.
Shifting away from coal is also in the insurance companies’ hard-nosed financial self-interest. Over half of coal plants operating today cost more to run than building new wind or solar, and by 2030 this will be true for the whole global coal fleet. By divesting from coal now, insurers can avoid their assets becoming “stranded” as the coal industry rapidly loses value.
In a recent briefing paper the rating agency Moody’s found that ending coal insurance can pay off for two other reasons. Coal companies are becoming risky clients because they may be tempted to neglect maintenance as they lose out to their clean energy competitors. And once they are forced to pay for the damages of global warming under climate lawsuits the insurers who are covering their liability risks will be faced with massive bills.
“Retreating from coal has a small negative impact on insurers’ revenue and short-term profitability,” Moody’s concludes, “but we believe it will reduce risk to their profitability over the longer-term. By excluding coal and other fossil fuels, insurers can also enhance their credentials as partners to the growing clean energy sectors.”
However, given the financial risks of doing business with the carbon industry, Ping An’s commitments on coal are extremely modest. Ping An only rules out insurance support for small projects and for plants that don’t meet high pollution standards. According to an analysis by Global Energy Monitor, the insurer can still offer services to 95 percent of the projects in the world’s coal pipeline, including 99 percent in China’s pipeline and 92 percent in the rest of the world. In other words, Ping An’s criteria only rule out the worst of the worst projects and are not in line with what climate science demands.
Moving forward Ping An and other Chinese insurers should take inspiration from the coal exit commitments of the world’s leading insurance companies. They should reconsider their support for any new coal projects, encourage existing coal company clients to accelerate their transition to renewable energy sources, and ramp up their services for the wind and solar industry.
By phasing out their support for the dying coal industry now, Ping An and other Chinese insurers can position themselves well for the low-carbon future and strengthen their role as “active global influencers.”
Peter Bosshard directs the Finance Program of the Sunrise Project.