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The ESG Review: Does the insurance industry’s ESG retreat pose new risks for corporate change?

Normally, when there is a rush of announcements about a United Nations net zero pact, it is because companies are queuing up to be part of it and pledge their commitments.

But the insurance sector has seen a week of turmoil during which multiple large global players have left the UN’s Net Zero Insurance Alliance, a programme that’s just two years old, including Allianz, AXA and Lloyds of London.

The mass decisions follow months of pressure from the political right in the US amidst rising ESG tensions. But the break point is reportedly rising corporate risk in the face of Republican lawyers maintaining that co-ordinated climate action in the insurance sector contravenes antitrust laws.

A Financial Times analysis piece this week painted a fairly bleak picture of the issue becoming a new ESG battleground. But it ended on the higher note that the mass quitting may be a “distraction” that was a necessary consequence of the virtues of ESG having become a tussle between big business and politics in the US, with such change - some Republicans would say - needing to be subject to policy rather than corporate alliances.

The reality of the exodus seems to be that the companies leaving the alliance couldn’t afford not to, given those tensions. Whether the alliance will survive is now in question, but ultimately the most lasting consequence of the resignations may be that global - and mostly European - corporations have been dragged into what has previously been a largely US debate.

As tensions have simmered, so has the political right had the insurance sector in its sights, as it was always likely to be a target for this type of broadside. Insurance companies have understandably kept their distance from the discussion, but some environmental campaigners have - as the FT analysis article pointed out - underlined some positive outcomes that the resignations may bring, and the fact that this has been about leaving an alliance rather than any broader U-turn on decarbonisastion commitments.

The fallout will take time to materialise, but suffice to say that the heat has been turned up several notches, and may even result in ESG reforms that strengthen the logic of corporate change.

In parallel, another large firm hit the headlines this week over its intentions to be classified an ESG stock at some future point. The CEO of Philip Morris outlined why he thinks the group’s shift away from cigarettes has put it on that path.

A week that has seen the premise and even the legality of ESG investing brought into question so dramatically stands to drive some change, but who the beneficiaries will be remains to be seen.

The ESG News Review is written by Steve Earl, a Partner at BOLDT.

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