Some insurance companies may be investing to heavily in the fossil fuel sector. That’s according to Ceres, which looked closely at the oil and gas holdings of the top 40 US insurance groups and that collectively hold $459 billion in assets.
The nonprofit sustainability group Ceres collaborated with the consulting firm Mercer. Their report discovered that some of the companies had significantly higher fossil fuel fixed-income investments than the benchmark Barclays U.S. Aggregate Bond Index.
“The global trend toward clean energy has significant implications for fossil fuel companies and their investors if action is not taken to manage climate risks,” said Mindy Lubber, president of Ceres and director of the Investor Network on Climate Risk. “Our hope is the report recommendations provide a roadmap for insurers and regulators to better manage these risks and seize opportunities that come from this energy transformation.”
According to the report, Ameriprise(12.4%), Lincoln National (11.8%) and Voya Financial (10.9%) had oil & gas bond holdings of well over 10 percent, more than double the median bond portfolio concentrations of the overall group (5.1%). Four groups had concentrations at 2 percent or less, the lowest being Progressive (0.2%)
The report went on to say that the vast majority of the insurers’ oil & gas investments —81 percent of $221 billion—were held in bonds issued by companies used to finance extraction and other capital expenditures, as well working capital. Recently, at least one of the largest oil & gas companies—ExxonMobil—has been selling bonds to cover the cost of shareholder dividends.
“Our analysis suggests that a carbon emissions trajectory consistent with a 2 degree pathway – which the entire world supported in the Paris Agreement –would reduce the revenues of the upstream fossil-fuel industry globally by a cumulative $33 trillion by 2040 (in constant 2014 U.S. dollars) relative to the current trajectory the world is on,” said Mark Lewis, managing director of European Utilities Research at Barclays Investment Bank. “This number is simply too big for investors to ignore and should galvanize investor engagement with fossil fuel companies on the risk of stranded assets.”