A cluster of insurance firms, convened by the United Nations and which has operated since 2021, has seen a number of large businesses quit at a time when legal challenges to ESG agendas in the US are growing more vocal.

Controversy continues in the world of insurance and how or whether commitments to Net Zero targets put it at odds with investors increasingly concerned that returns and financial strength are being sacrificed for environmental goals. Insurers are reportedly being forced to rethink their stance.

In late March, Munich Re, the world’s biggest reinsurer, recently quit the UN-backed Net Zero Insurance Alliance, citing what it called the “material” legal risks it would face if it remained. Other insurance firms, such as Hannover Re and Zurich Insurance Group, have followed suit. The organisations say they remain committed to Net Zero goals, but not by working through an alliance.

“In our view, the opportunities to pursue decarbonisation goals in a collective approach among insurers worldwide without exposing ourselves to material antitrust risks are so limited that it is more effective to pursue our climate ambition to reduce global warming individually," Joachim Wenning, CEO of Munich Re, said at the time.

Media reports (Insurance Journal, 5 May, and Responsible Investor, 25 May) said other groups, including AXA and Allianz, have quit the Alliance. NZIA, which has no US members and at its peak represented roughly 15 per cent of global premiums, said in a 12 April statement that “it and its members will comply with applicable laws, rules and regulations, including antitrust" (Insurance Journal).

In the past few years, decarbonisation strategies have been controversial. The European Union, for example, in late 2022 changed the “taxonomy” of the concept “sustainable” to include nuclear power and natural gas (which produces less CO2 than coal) for the purposes of defining guidance for investment. The Russian invasion of Ukraine, costs of transition away from fossil fuels, and supply chain disruptions amidst the pandemic, all contributed to a spike in energy bills. This has sparked worries that the US and Western Europe will see manufacturing decamp to China, India and other countries which tend to be seen as more relaxed about fossil fuel energy. As inflation and the cost of living have become hot political issues, the Net Zero idea is attracting political heat.

In the US, for example, a number of Republican-led states have launched campaigns against ESG investing where it might endanger returns, stating that these are at odds with fiduciary obligations. For example, if a pension plan falls short of liabilities through investment decisions, the shortfall is picked up by the taxpayer. In a 15 May case, 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 (source: Bloomberg).

An issue is that a number of regulators, such as the Securities and Exchange Commission in the US and Monetary Authority of Singapore, have pushed for ESG rules to be embedded in the reporting requirements of firms. This has prompted criticism claiming that these requirements exceed the governing brief of such institutions. 

It is not just in the US where the Net Zero agenda has come under criticism. French president Emmanuel Macron has called for a "regulatory break" on envionmental matters in Europe. He was thought to be voicing concerns that higher energy prices, some of which are linked to Green transition moves – at least in the short run – are driving industry to lower-cost regions and costing thousands of jobs and revenues.

(Editor's note: US correspondent Charles Paikert, and group editor Tom Burroughes, have remarked on these sorts of issues before.)