Sustainability move by BlackRock could signal seismic shift for insurers

Notable insurance shareholder BlackRock recently announced plans to place sustainability at the centre of its investment approach, intensifying the investment firm’s engagement with companies on sustainability-related risk. The move has a particular focus on divestment from coal-fired power. Financial commentators suggest that this sends a strong symbolic message to investors and the finance world as a whole and could have a real and direct impact on insurance companies, especially those heavily invested in coal fired power.

“BlackRock controls two to three percent of shares of most insurance companies. They are among the 10 biggest shareholders of numerous coal insurers including AIG, Tokio Marine, W.R Berkley and the Markel Corporation. As well as this, they may well manage assets of certain insurance companies, and will certainly be an insurance customer,” Peter Bosshard, director of the Finance Programme at green campaign organisation The Sunrise Project told Intelligent Insurer. Bosshard added that BlackRock’s role here is modest in comparison to the butterfly effect the move will have on financial institutions as many other investors and asset managers follow BlackRock’s business model.

This approach could signal a seismic shift towards improved sustainability on a global level but Bosshard warned that the transition from coal fired power to renewable energy needs to be gradual.  “There is a worry that coal workers may lose their jobs if everyone divests from coal, but we have seen models with Spanish coal mines where workers have been retrained to work with cleaner energy technology,” he said.

According to Bosshard, insurers must adapt to the transition too and to make the move from coal to renewables must change how they assess the risk associated with renewables. Wind and solar for example are more exposed and susceptible to damage from the elements. But he said “the faster we phase out coal, the better”, although this may be more difficult for newly industrialised countries that lack wind and solar capacity.

Coal-fired power plants produce excessive amounts of carbon dioxide, as well as sulphur dioxide, nitrogen oxide and mercury. The Sunrise Project seeks to accelerate the switch from coal to clean energy, scaling up social movements to disrupt the coal economy. With $7 trillion of capital, BlackRock’s position in the finance industry is influential and the decision looks set to more than disrupt the coal economy. “BlackRock has lost confidence in coal. And if the world's biggest institutional investor has lost confidence in coal, the chief investment and chief risk officers of insurance companies will find it difficult to justify continued involvement in this sector,” concluded Bosshard.