However, the industry cannot abdicate its responsibility to protect the world’s current energy supply, says global insurance leader
The energy crisis across Europe – largely brought about by the war in Ukraine – has highlighted the continued importance of fossil fuels to economies across the world.
Resultingly, this crisis has highlighted that “alternative, renewable energy is not ready” to supplant its greenhouse gas laden counterpart.
This is according to Isabelle Santenac, global insurance leader at professional services firm EY.
She tells Insurance Times: “We can’t ignore [the importance of fossil fuels] because we cannot have a shutdown of society during the winter – we may experience a crisis in a few months from now.”
Europe is currently bracing for a winter with a severely reduced supply of energy. In the UK, the government had to step in to cap energy prices per unit in September 2022 as costs spiralled out of control for consumers.
According to the International Energy Agency’s November 2021 Oil market and Russian supply report, Russia is a leading producer and exporter of natural gas and oil, with 60% of its exports going to Europe in 2020.
International sanctions imposed on the state by Western countries as a result of its aggression in Ukraine have cut off this supply, with other sources unable to fully plug this energy gap.
While the crisis has highlighted that renewable sources of energy production are not currently sufficient to compensate for the reduction in available fossil fuels, Santenac believes that today’s energy crisis provides a concrete rationale for action.
She says: “We need to accelerate the supply of renewable energies and think differently from an energy perspective.
“The insurance industry is a big investor and a big influencer in the world and there is a big part to play for the industry.”
Investments in projects to create renewable energy should be paired with a wider approach to promote renewable energy to governments and other business sectors, she explains.
Speed is also of the essence in the transition to renewable energy. Santenac adds: “The idea cannot be to plan for this in five or six years. It has to be now. We need to have clear responsibilities and accountability.”
A simple answer?
The insurance industry certainly has a positive, active role to play in supporting the drive towards renewable energy and a net zero carbon emissions economy in the UK.
EY itself announced that it was carbon negative in 2022 for the second year running, meaning that it offset more carbon dioxide that it emitted across the year.
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However, some sustainability commentators have questioned whether insurers should go further and refuse to cover projects that are detrimental to the environment – such as oil pipelines or mines.
In October 2021, Lloyd’s of London told the insurance market that it would cease providing new cover for thermal coal fired plants, thermal coal mines, oil sands and Arctic energy exploration activity. It also committed to phase out existing cover of these risks by 2030.
This announcement formed part of what Lloyd’s – which insures 40% of the global energy market – called a “rapid but orderly transition to net zero”.
When asked whether she believes insurers should stop providing cover for projects that damage the environment, Santenac says: “The simple answer is yes.”
However, she explains: “The real answer is more complicated than that. The reality is, when you look at the current crisis, we cannot ignore that we still need some fossil fuel energy for a transition period.
“In my view, insurers must say ‘how can we help the fossil fuel companies to accelerate towards different energy’, rather than [just walking] away.”
Santenac says that walking this line is difficult for insurance firms because it involves a contradiction between environmental and social goals, or “the ‘E’ and the ‘S’ of ESG”.
“To help society go through this crisis, we have to accept a little bit of damage to the environment in the short term and work in the medium term for a better solution,” she says.
Importance of education
In its role supporting fossil fuel companies to transition towards green goals, Santenac notes the importance of educating both businesses and members of the public.
She says: “Educating people about the positive impact of what insurers do is important – we need to be a little bit more vocal on all the good things we do.
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“[We should] explain how we support the transition and how we help clients to accelerate the transition.”
This can be difficult, however, because of the scrutiny that insurers come under from some sections of society – such as climate activists – to simply “walk away” from projects that damage the environment.
In June this year, for example, the Mothers Rise Up climate action group targeted Lloyd’s with a performance protest, demanding that the market accelerate its plans to stop insuring fossil fuel projects.
“It’s difficult to resist in today’s world when you have a lot of pressure in the media,” says Santenac.
“Why do some companies simply walk away? Because they are forced to, from a reputation perspective, by activists telling them ‘you should stop that’ and being very vocal in the press to name and shame companies.
“The conviction [of the activists] is to help, but that’s also where I think the pressure on insurance companies to stop working with some sectors is a short-term view.”
Santenac believes that insurance, as an industry, should be much more aligned on the issue of combating climate change and how to provide advice and support for this goal.
“[Insurance firms] need to work together – there is really a need to have [an] industry proposition rather than an individual proposition,” she explains.
“This resonates very well with the purpose of the industry, which it to protect people from risks.”