Allianz Group broke new ground today when it announced it would integrate 2°C targets into its insurance and investment decisions until 2040, including an assessment of companies’ capital expenditure plans.
The world’s biggest insurer will also exit coal over the period, it confirmed. The coal exclusions will relate to both its in-house investments and insurance provision. They will begin with an immediate banning of property and casualty insurance to single coal-fired mines, and a reduction in the renewable of existing contracts for such projects. “Allianz’s stated goal is to completely phase out coal risks in the insurance business by 2040,” it explained. Companies that run mix-energy portfolios will continue to receive company-level insurance, and will be reviewed “on the basis of defined ESG criteria”, it added.
On the investment side, with immediate effect Allianz will stop financing companies that “put the 2°C target at risk by extensively building coal-fired power plants”. Over the longer term, it will incrementally reduce the threshold for how much value a company being financed derives from coal. This will take place in 5% stages, starting with the current level of 30% and moving to 0% by 2040. In a statement, Allianz said its approach would “strengthen our position as a forward-looking investor”.
“One of [our] long-term objectives [is] structuring tradable investments in all carbon-intensive sectors to be climate neutral,” it said. “Companies that do not success in adjusting their greenhouse gas emissions to the 2°C target over the coming decades will be gradually removed from the portfolio.”
Allianz said it would engage in dialogue with target companies and make formal requests for “long-term climate protection targets”.It will continue its work with non-profit Science Based Target Initiative – created by the UN Global Compact, CDP and WWF – and think-tank 2° Investing Initiative to help gather data and create models, with “underlying methods and targets” expected by the end of the year, it said.
“The stated aim of the climate strategy is to ensure the integration of the two-degree target in all of Allianz Group’s relevant business activities,” said a statement.
The move was hailed by 2° Investing Initiative as “a breakthrough in integrating climate criteria into investment and capital stewardship and engagement decisions that go beyond backwards-looking metrics to forward-looking indicators”. It said Allianz may be the first major investor to publicly announce such a strategy, including a commitment to “explicitly integrate the capital expenditure plans of companies”.
Campaign group Unfriend Coal said the announcement marked “an important step towards making the coal industry uninsurable and uninvestable”, but urged it to “commit to a more ambitious sunset period than 2040.”
There has been increasing pressure on the insurance industry to get behind climate efforts in the financial markets. This week, the City of Paris asked its own insurers to exit coal, and called for broader divestment from the sector. Unfriend Coal recently published a report looking at holes in the current commitments from European insurers.
Allianz pulled out of equity financing for coal-based business models in 2015, and stopped making fixed-income investments in the space. Existing fixed-income holdings are being sold down.
If you want to hear Axel Zehren, CFO, Allianz IM and Michael Bruch, Head of Emerging Trends and the ESG department, Allianz (AGCS) give their thoughts on implementing ESG into underwriting and investments check out RI Webinar’s latest broadcast on ESG in the insurance industry here