What if we don’t get coal exit policies right?
September 19, 2019
By Lucie Pinson, European Coordinator of Unfriend Coal
To keep global warming to 1.5°C, we urgently need to phase out coal. The insurance industry, to its credit, is beginning to realize this and take action. Momentum is growing within the industry to adopt coal policies: Since 2015, 16 insurers have restricted investment and/or insurance exposure to the coal sector. However, while there are clear signs that some coal companies are beginning to face difficulties securing insurance coverage, are these policies actually supporting the rapid coal phase-out we need?
In order to reduce exposure to coal, insurers first have to identify the companies that engage in the coal sector. The Global Coal Exit List (GCEL), created and updated today by the NGO Urgewald, is the most comprehensive database of companies operating along the thermal coal value chain. It provides crucial information that financial institutions need to identify their exposure to the coal sector. All in all, the 746 parent companies and over 1400 subsidiaries listed in the GCEL represent 89% of the world’s thermal coal production, and almost 87% of the world’s installed coal-fired capacity.
Since its first publication in 2017, the tool has gained wide recognition within the financial community; over 200 financial institutions are now registered users of the database. Some global insurers have publicly stated the role the GCEL played in supporting them to shape their coal policies. However, even access to the right information has not produced adequate, comprehensive divestment and exclusion policies. Upon closer inspection, even the best insurance company coal policies are still allowing massive amounts of coal through the global pipeline. This is an outrage, considering the fact that there is no space for new coal projects and we need to phase out existing operations if we are to keep average global temperature increases to 1.5°C.
The problem lies within the guidelines insurers have adopted. Unfriend Coal has set forth three criteria, based on the GCEL, to help insurers reduce their exposure to coal. The criteria demand insurers stop insuring or investing in companies that:
a) generate over 30% of their revenues or power from coal
b) have more than 10GW of installed coal capacity or 20MT of annual coal production
c) are planning to expand coal mining, coal power or coal infrastructure.
Several insurers, including Chubb, QBE and Swiss Re, seized on the first recommendation; they have all adopted the 30% revenue exclusion threshold. But that threshold alone is not enough. On the mining side, the 30% threshold doesn’t capture companies collectively producing 774 million tons of coal a year, much more than the coal consumed by the EU28 in 2017. It also fails to exclude some of the largest coal producers worldwide, including the usual suspects such as Anglo American or BHP Billiton, but also the Czech company CEZ, each of which produces more than 20 MT coal a year. Moreover, the GCEL shows that 128 of these companies even have coal mining expansion plans. Any policy which does not exclude these massive actors is doomed to fail.
The problems with adopting only the 30% exclusion threshold become even clearer when examining the power sector. Insurers must take into account companies’ expansion plans here as well. A 30% exclusion threshold does not capture power companies planning 202 GW of new coal power capacity – almost as much as India’s coal fleet, and as much as the joint coal fleet of Germany, Poland, South Africa and Russia. This represents 35% of the planned coal pipeline.
The numbers become even more startling when you consider that insurers may calculate a company’s coal business in many different ways. If an insurer only looks at the coal share of a company’s revenues – instead at the coal share of its power generation, for instance – to screen out coal power utilities, it could miss up to 44% of the planned coal pipeline. This is why it’s crucial that insurers’ coal policies take planned expansion into account.
Some companies, including AXA, have tried to mitigate this risk. AXA complements its 30% coal share of power generation threshold with a policy to exclude companies planning more than 3GW of new coal power capacity. But even this is not enough – the French insurer is still missing more than 118 GW of new coal capacity, 20% of the coal pipeline. This is why it’s essential that insurers’ coal policies take a company’s expansion plans into account when deciding to restrict investment or insurance.
Overall, the 2019 GCEL identifies 259 coal plant developers and over 400 companies of the 746 companies on the list that are still planning on expanding their coal operations. These striking numbers are appalling given the fight we are supposed to be leading against climate change. The 2019 GCEL must serve as a wake-up call to all insurers. Just like other financial institutions, they won’t be taken seriously on climate if their coal policies don’t exclude some of the worst climate offenders.
Insurers must urgently adopt new coal policies, or revise older policies, and get the details right. It’s time for insurers to leave the 746 companies featured in the GCEL behind, in order to make the Paris climate goals achievable.