"Global companies find themselves between a rock and hard place"
by Alastair Marsh
The world’s biggest climate coalition for insurers have held emergency talks after a wave of defections revealed the extent to which anti-ESG rhetoric in the US is unsettling members.
Signatories of the Net Zero Insurance Alliance are due to meet Thursday to discuss next steps after some of the group’s biggest members including Munich Re walked out, according to people familiar with the process who asked not to be identified discussing private information.
The development follows an escalation of Republican Party attacks on businesses and investors perceived to be embracing environmental, social and good governance goals. In a May 15 letter, attorneys general representing 23 US states said they were “concerned with the legality” of the NZIA, as they blamed the group for rising insurance and gas prices, and linked the alliance to “record-breaking” inflation.
The letter is the latest example of the GOP turning to antitrust rules as a lever through which to vilify ESG. GOP senators announced plans last year to fight “ESG collusion,” while House Republicans ended 2022 by launching an investigation into whether climate alliances “are violating antitrust laws.” The goal is to single out those “advancing the ESG agenda,” they said.
“Global companies find themselves between a rock and hard place,” said Karl Racine, a former attorney general of the District of Columbia, who’s now a partner at Hogan Lovells. While Europe has “embraced ESG and established regulatory and legal requirements to support it,” the situation in the US is shaped by partisan politics. “Global companies are, thus, confronted with challenging questions as to how to navigate these disparate waters,” he said.
The United Nations Environment Programme, which convened the NZIA in 2021, said in a statement Wednesday that the decision by some signatories to walk away from the alliance was “in light of the recent discussions within the United States.” UNEP didn’t immediately respond to a request for comment on Thursday’s meeting.
NZIA, which hasn’t had any US members since being convened, has seen four major insurers walk out since the end of March. Munich Re’s defection was followed by Zurich Insurance Group AG and Hannover Re. This week, Swiss Re joined the exodus. All four have said they remain committed to climate goals, but preferred to pursue these in isolation rather than as part of the NZIA.
“The biggest success of the anti-ESG movement is getting companies to talk less about ESG,” said Joshua Lichtenstein, a partner at law firm Ropes & Gray LLP in New York. “They have slowed the trajectory of ESG communications here in the US. But clearly, the pro-ESG side is still winning by a pretty large margin.”
The legal foundation of the GOP’s attacks on ESG remains unclear. Sonali Siriwardena, partner and global head of ESG at Simmons & Simmons in London, said that with the AGs requesting documentation on the types of communications between NZIA members, as well as the kinds of commitments made and the factors influencing efforts to cut emissions, it now “remains to be seen how robust these allegations will be and how NZIA members will respond.”
Other NZIA members have signalled they remain committed to the group.
The alliance “has played an important role developing the critical standards and frameworks for insurers to meet net zero,” a spokesperson for Aviva Plc said in an emailed comment. “In light of recent developments, we are working with the UN and other members to determine the best course of action going forward. We remain fully committed to pursuing our ambition of becoming a net zero company by 2040.”
For firms that remain in the alliance, “they are going to have to evaluate whether their continued participation is actually going to harm them commercially in terms of contracts from red states,” Lichtenstein said.
The NZIA, which at its peak represented roughly 15% of the insurance industry’s global premiums, is one of eight climate finance coalitions within the Glasgow Financial Alliance for Net Zero of which former Bank of England Governor Mark Carney was the principal architect.
In an emailed statement, UNEP said that “regardless of the situation,” it “reaffirms its conviction ever since it initiated, convened, and launched the NZIA — that in order to successfully tackle the climate emergency, there is a fundamental and urgent need for collaboration, not just individual action.”