The world is moving away from coal, and the insurance industry plays an important role in the process. Yet Tokio Marine and other Japanese insurers have so far missed the opportunity to demonstrate leadership in the transition to clean energy.
Coal is the single biggest source of carbon-dioxide emissions. The UN Environment Program’s recent Production Gap report found that we cannot afford to build any new coal projects and need to reduce coal consumption by 11% per year in order to limit global warming to a manageable 1.5 degrees Celsius.
This task has become easier with the rapid development of renewable energy sources, which today are cheaper than the operation of existing coal power plants in much of the world.
Thirty-four governments have committed “to accelerate the transition from coal to clean energy” in the Powering Past Coal Alliance. Last year, when the global economy slowed under the impact of the Covid-19 pandemic, global coal consumption dropped by 5%. Yet more than 700 coal power plants are still under construction or in the planning pipeline, and coal consumption risks bouncing back when the global economy gathers steam again.
Insurance companies are in a unique position to accelerate the transition from coal to renewable energy. With their access to the latest climate science, they have warned about the risks of global warming since the 1990s, and last year they paid out no less than US$82 billion for natural disasters fueled by climate change.
As society’s risk managers, insurance companies can influence the pace and direction of the energy transition. In a recent report, the French bank Société Générale found that “without insurance, coal projects are simply not viable. Therefore, the insurance industry can, almost singlehandedly, exert pressure on coal energy producers, which other industries are less well placed to do.”
Led by such companies as AXA, Zurich, Allianz and Swiss Re, the insurance industry is quickly shifting away from coal. Currently, 26 major insurers have committed to stop insuring new coal projects and in many cases, phase out their support for existing coal operations. At least 70 insurance companies have also divested their assets from the coal industry.
With Tokio Marine, MS&AD and Sompo, Japan is home to some of the world’s leading insurance companies. Tokio Marine in particular is trying to position itself as a leader on climate change.
The company has joined the Japan Climate Leaders Partnership, promotes the disclosure of some climate-related information and funds the planting of mangrove forests along vulnerable coastlines. Its chief executive officer Satoru Komiya has declared climate change “a top-priority issue that we must address head-on.”
Yet in spite of such gestures and commitments, Tokio Marine and other Japanese insurers are lagging behind the international trend on coal. Tokio Marine is among the world’s top 10 coal, oil and gas insurers and continues to advertise its services for new fossil-fuel projects on its website.
Acknowledging the international trend, Tokio Marine declared last year that it would in principle stop insuring and investing in new coal power projects. Yet this declaration was largely symbolic. Tokio Marine’s statement on the topic is punctured by so many loopholes that the company can still insure any coal projects in the pipeline.
For example, the insurer has not ruled out support for new power plants in Bangladesh, Indonesia and Vietnam that have met strong opposition at home and overseas. This undermines the progress that other insurance companies have made in promoting the clean-energy transition.
Strong coal-exit policies are seen as an indicator of a forward-looking management. Société Générale in its new report increased the target price for the shares of insurers with strong coal-exit policies by 4-5%. And shareholders with more than $3 trillion under management recently called on Tokio Marine to stop insuring coal projects.
Tokio Marine, which acquired a renewable-energy insurer last year, can position itself as a leader in underwriting the low-carbon transition. As the climate crisis escalates, the pressure to shift away from fossil fuels will only increase.
Ending all support for new coal projects and phasing out support for existing operations is not just in the public interest but also in the self-interest of Japanese insurance companies.