With environmental, social and governance (ESG) awareness on the rise, insurance companies are starting to hold difficult conversations with their long-standing carbon-producing partners, said three P&C insurance company executives during a Canadian Underwriter webinar on Jan. 25.
In compliance with the federal government mandating all financial services to come up with carbon reduction metrics by 2030 and 2050, many insurers have begun, or will begin, restricting coverage for some high-polluting clients in sectors such as energy, oil and gas and, notably, the Athabascan oil sands.
“It’s a difficult conversation with these key clients. So, there are particularly the Western oil sands clients, who’ve been clients for many big commercial insurers for probably four decades,” says Bernard McNulty, chief agent and head of claims in Canada at Allianz Global Corporate and Specialty.
“They’ve been great partners, we understand their risk, but this ESG framework is very important for the future of all of us. We’re going to implement this framework, and that means cutting capacity dramatically to those companies.”
McNulty listed many sectors, from agriculture, fisheries and forestry to gambling and nuclear power, as sectors that ESG framework implementation will affect.
“The Allianz investment group manages $647 billion in assets, and the way that we invest those assets is critical that it’s in line with an ESG framework,” McNulty says. “Who we partner with, and the way they operate those facilities is absolutely critical that it matches our framework. So, lots of challenges, and the odd opportunity.”
Carol Jardine, executive vice president and president of Canadian P&C operations at Wawanesa Mutual Insurance Company, also touched on the challenge of investing.
“We as underwriters have two challenges,” Jardine says. “The investment income, where do we invest our dollars? Is that ESG? Is that carbon? But also, what are we going to do about underwriting?”
Jardine says insurance companies are becoming essential voices in the transition away from carbon production.
“We as insurance underwriters have to understand that as we underwrite this transition to carbon, we have to be prepared to embrace new ways of energy creation, but also understand what it means when we’re being asked to perhaps not support carbon generating energy producers,” she says.
So, while these mandates are creating challenges, some also say they are creating unique opportunities for the industry to become ESG leaders.
“In many, many years climate is front and centre for all of us — the industry, the world — and that’s actually a positive,” Andy Taylor, CEO at Gore Mutual says.
“I think we have a unique and exciting opportunity as an industry to have a very positive impact overall on climate, on ESG particularly, and on the issue of carbon,” Taylor says. “… I think our industry can really take a leading role in helping Canada and the world move in that direction.”