Campaigners pushing for asset managers and asset owners to divest themselves of coal may up the pressure on BlackRock via more public campaigning should it be felt that the world’s biggest asset manager is failing to engage sufficiently in ongoing discussions – according to one of those who has successfully persuaded Hannover Re to commit to a divestment policy.
Peter Bosshard, director of the finance programme of the Sunrise Project, an Australian climate advocacy group, and coordinator of the Unfriend Coal campaign made the comment when outlining ongoing efforts, which so far have been more focused on the insurance and re-insurance sectors, and providers such as Generali, Lloyds, Markel Corporation, Munich Re, SCOR and Swiss Re.
Hannover Re’s announcement of a policy shift means that close to half the global re-insurance market has committed to divestment from coal. In its particular case, the re-insurer has committed to divesting from companies that depend on coal for more than 25% of revenues. But, it will continue to insure coal power plants on the basis that it is up to sovereign governments whether such plants are constructed.
Together with Hannover Re’s estimated 6.7% global market share by premiums and those others listed above, the Unfriend Coal Campaign and fellow campaign group Urgewald believe that some 45% of global reinsurance premiums are now in the hands of firms with a coal divestment policy – total global 2016 re-insurance premiums are estimated at around $257.5bn.
Hannover Re has some $63.6bn AUM, according to Unfriend Coal and Urgewald.
“Seventeen insurers have now adopted divestment policies for assets of more than $6trn and have withdrawn an estimated $30bn from the coal sector. Four – Allianz, AXA, SCOR and Zurich – have also decided to limit or stop underwriting coal projects, and Swiss Re has announced that it will prepare such a policy by mid-2018,” they said in a statement on Hannover Re’s policy decision.
There are differences between insurance groups and the ability to influence their position as asset owners and asset managers, for example, depending to what extent they engage in managing third party assets, Bosshard said.
However, when engagement takes place, it is applicable to both. An example would be AXA, which has a significant third party AM business. Another is Zurich, which albeit described as smaller than the likes of Allianz and Axa by Bosshard provides another divestment model for insurers active in third party management.
Then there are larger asset manager such as Natixis, which are also involved in insurance as a ‘side business’, which have a principle for divesting from coal, but offer clients the option to buy in on request.
“That’s also a reasonable way to go forward,” Bosshard says.
Looking to asset managers in particular, Bosshard references ongoing efforts to engage BlackRock on the coal divestment issue, which is being done together with a number of other campaign groups. Following the latest BlackRock AGM groups such as Friends of the Earth, the Sunrise Project and the Sierra Club issued a joint release focused on concerns over levels of engagement, particularly in mind of the ‘Dear CEO’ letter written by BlackRock CEO Larry Fink earlier in the year, which highlighted the need for asset managers and asset owners to think about the social good that they could bring about.
Bosshard notes that there was a dialog at the manager’s AGM, but warned that “we will take up a more public campaign if direct engagement doesn’t produce results.”
But other asset managers should be in no doubt that they too may come under the spotlight of campaigns, he suggested, noting that there are other divestment campaigns targeting both asset managers and owners.
There is also a technical element to the divestment campaigning ongoing, Bosshard said. For coal it is about so-called thermal coal, given the current lack of substitution for metallurgical coal – something recognised by campaigns such as Unfriend Coal.
That said, there is significant imperative to engender change, he added.
“If look at what climate scientists are telling us it’s clear we need to move away from coal rapidly.”
“We cannot afford to build any more coal [plants] and need to phase out existing burning of coal within OECD countries by 2030. We really need to move away from coal rapidly toward clean energy sources. For that to happen, don’t just need divestment from coal, but need a significant shift in the investment community.”
Bosshard likens the ongoing coal divestment campaign to the way the divestment programme against the former Apartheid regime in South Africa developed. Currently coal utilities and coal miners are “feeling the pinch”, but “we can can increase that pressure and create a response from responsible asset owners at a time when some governments, including, most importantly, the US, have completely abdicated their responsibility to take climate action.”
“All of us to an extent are asset owners, so can take responsibility for our own funds. There is a moral argument, but also a financial argument, at least in the longer term. In the past five years it made a lot of financial sense to divest from coal, those which did were financially rewarded. Right now the coal price is seeing a bit of a comeback, but that’s not a structural shift, the structural shift is away from coal.”
“It is also about financial self interest, therefore it goes beyond the generational shift; there are sound financial arguments, which every responsible asset owner will have to pay attention to, and which the Bank of England and other prudential regulators are going to have to deal with.”