US insurers invested billions in fossil fuels as climate change risks increase

August 16, 2023|Written by Moriah Costa

US insurers have invested billions in fossil fuel companies that are contributing to increased climate risk in the sector, a new study has found.

A total of US$536bn was invested in fossil fuel-related investments in 2019, a study from sustainability consulting firm ERM, advocacy group Ceres and carbon accounting firm Persefoni found.

Meanwhile, the increase in natural disasters in the US has caused several insurers to increase premiums or even stop coverage. State Farm stopped accepting new home insurance applications in California due to increased risk from wildfires, while insurers in Florida and Louisiana have stopped renewing homeowner policies due to increased flooding and hurricane risk.

At the same time, State Farm held the largest stake in tar stands and coal investments in 2019, at 30% and 23% of total investment by the sector.

The study shows that “climate risk is financial risk” and insurance companies should measure the impact they are having through their investments, said Kentaro Kawamori, CEO and co-founder of Persefoni.

“The technology to do this exists and will help the transition to a global decarbonized economy without penalising businesses and consumers,” he said.

Concentrated fossil fuel investments

The report also found that investments in fossil fuels are largely concentrated among a few insurance companies – 16 of the 411 insurers studied held roughly 50% of the industry’s total fossil fuel-related investments.

Even when investment policies only hold one type of fossil fuel or one type of investment, they may still include large fossil fuel holdings, the study found. The researchers included corporate utility assets as fossil fuels but acknowledged that this sector was investing heavily in clean energy.

The study was compiled using 2019 data from the California Department of Insurance, the most recent data available. It is based on insurers operating in California at the time, which represents 77% of all insurers operating in the US.

The researchers interviewed executives, regulators and other experts to assess the changes that have occurred since 2019. Some companies said they have made “huge changes” since then and plan to invest more in green and sustainable bonds in the next few years.

The interviews suggest that the sector has made an effort to respond to how they invest in fossil fuel companies but it will take years for it to have an impact. In some cases, long-term investments like coal bonds could sit in their portfolio for years after policy changes.

It’s not just insurance companies investing in fossil fuels. The latest Banking on Climate Chaos report found that banks have also invested heavily in fossil fuels, investing USD$673bn in 2022 alone.

Insurers are “uniquely exposed to climate-related challenges,” said Tom Reichert, group CEP of ERM.

“Now is the time for insurers to take action to address these risks and opportunities related to their investments and underwriting,” he added.

This page was last updated August 16, 2023

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