The Treasury Department, two U.S. senators, and a national group of state regulators sought information last week to determine climate impacts on the insurance industry.
Welcome back to the Climate Nexus finance newsletter – a regular update that looks at the big stories and players at the intersection of climate change, finance, regulation, and energy, with tips for the week ahead.
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ESG backlash flops with investors
Despite a “red wave” of backlash against the use of environmental, social, and governance (ESG) metrics by GOP politicians, a Bloomberg Intelligence survey indicates that global investors and executives are largely acting as if those efforts will fail. The survey found a strong consensus among investors: 89% consider using ESG as mainstream, and 57% oppose replacing the ESG label. It highlighted that 85% of investors believe ESG leads to better returns and more resilient portfolios, with 88% planning to expand climate-friendly strategies.
This reality didn’t deter House Republicans from using another over four hour committee hearing to regurgitate anti-ESG rhetoric and play politics. Recent ESG fund outflows, as high interest rates and geopolitical turmoil disrupt markets, make it an easy political punching bag in the short-term. But the long-term outlook remains positive, due to expected fund realignment in response to greenwashing, multiple new regulations coming online, and bankers implementing tougher standards on ESG-linked loans.
Disasters drive insurance gains
Insurers overwhelmingly provide coverage for fossil fuel development and expansion while fleeing markets and abandoning customers, according to Insure Our Future’s seventh annual Scorecard on Insurance. With insured losses from natural disasters exceeding $100 billion last year, many are left questioning the decision to prop up the industry responsible for those losses. Looking past the cost of near-term disasters, some analysts believe climate change will boost insurer profits in two ways. First, it reduces capacity as companies move away from high-risk property and casualty insurance, and second, the increase in more extreme and frequent weather events increases demand for insurance. This combination has insurance companies “delivering the best results I have seen in twenty years of following the sector,” according to equity analyst Greg Locraft.
Big money for a questionable solution
Billions of dollars flowing from the Inflation Reduction Act may be slow to reach homeowners, but one group is already cashing in: Big Oil. Occidental Petroleum last week announced a $550 million investment from BlackRock to build the world’s largest direct air capture facility. The venture aims to exploit expanded IRA incentives for projects that capture and store carbon to mitigate climate impacts.
Direct air capture, a subset of carbon capture, involves extracting carbon directly from the atmosphere. Despite previous attempts yielding subpar results or outright failures, the world’s biggest money-runner is betting on its potential, given the government incentives in place. Investors appeared to agree. The key thing to understand with these efforts is that Big Oil isn’t trying to address climate change. Instead, these projects are necessary to extend fossil fuels' social license to keep fracking, drilling, and pumping.
Inflation bites
Inflation and high interest rates continue their unrelenting assault on the clean energy sector, felling projects from a giant wind farm off the New Jersey coast to a small-scale nuclear plant. Even heat pumps are feeling the pinch. Some experts say the rising prices and rates, which hit capital-intensive industries like clean energy hard, may jeopardize Biden’s climate goals. Others are more sanguine, thinking the price spikes are likely temporary and should ease as global supply chains recover and domestic parts production increases.
McKinsey’s oil agenda unmasked
Consulting behemoth McKinsey & Company is under scrutiny for purportedly advocating fossil fuel interests in its role as an advisor at the UN's COP 28 climate talks. Despite framing itself as a force for good and climate leader, McKinsey is accused of pushing agendas that favor its big oil and gas clients, including ExxonMobil and Saudi Aramco. Leaked documents and investigations reveal that McKinsey's proposed energy scenarios for the COP28, hosted by the UAE, significantly contradict the goals of the 2015 Paris Agreement, suggesting a mere 50% reduction in oil usage by 2050 and advocating for trillions in new oil and gas investments. John Oliver said it best: McKinsey “shouldn’t get to be invisible.”
November 21-22: Organisation for Economic Co-operation and Development (OECD) Green Growth and Sustainable Development Forum. In-person and virtual. Register here.
November 29: As You Sow Webinar: Capturing the Diversity Benefit – Workforce Diversity Linked to Financial Performance. Register here.
November 30: Deadline to submit inputs to the UN Human Rights Special Rapporteur on climate change, who is requesting information on corporate accountability in the context of human rights and climate change.
December 4: Last day to sign onto a BankTrack and Reclaim Finance letter to banks financing the expansion of the world’s metallurgical coal capacity. Read the letter and sign on here.
December 18: Ceres Charting Progress: Regulator Actions on Climate Financial Risks Webinar. Register here.
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– Steve Hargreaves, Katharine Poole, Jayson O'Neill and Olivia Amitay
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