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Global insurance sector pulls billions from coal, but activists say US lags

Several large insurance companies are pulling away from the coal industry, but U.S. insurers have been slow to join the trend, a new report from a collection of anti-coal activists concludes.

Insurance companies have pulled about $20 billion in investment out of coal and are increasingly refusing to underwrite new coal projects, a coalition of groups behind the Unfriend Coal campaign announced. The group is a global network of nongovernmental organizations including 350.org, Greenpeace Switzerland, Rainforest Action Network, Sierra Club and the Waterkeeper Alliance.

While 15 insurers holding more than $4 trillion in assets have taken or are planning to take action against coal, promoters of the campaign are urging insurance companies to do more to shift away from coal in a bid to mitigate climate change risk.

Financing coal projects, especially in the western world, is "definitely going to be harder" for coal producers and coal consumers, said Andy Roberts, research director of global thermal coal markets at Wood Mackenzie. Whether the public will accept the potential economic consequences of moving away from coal, including possible price increases or energy shortages, will be the big question, he said.

Roberts expects climate change issues will continue to exert public pressure on coal companies as there is "less and less scientific opposition to the premise that global warming is real, man-made, and carbon-driven."

"Many decisions to exit coal have already been made and there is no going back," Roberts said. "There is both perception and reality that coal is risky."

Peabody Energy Corp., the largest private-sector coal miner in the world, noted in a recent securities filing that concerns about the impact of coal combustion have resulted in increased regulation as well as "unfavorable lending policies by government-backed lending institutions and development banks toward the financing of new overseas coal-fueled power plants and divestment efforts affecting the investment community."

While companies have talked about capital markets opening up to investment after a wave of bankruptcies, the coal sector has continued to struggle in some instances.

Recently, Murray Energy Corp. and Bowie Resource Partners LLC canceled a $510 million debt deal due to "financial market conditions." Despite a successful initial public offering of Ramaco Resources Inc. in early 2017, Contura Energy Inc. pulled its own IPO in August, citing capital market conditions that it said would undervalue the U.S. coal company.

Chiza Vitta, director of natural resources for S&P Global Ratings, said that while financial institutions are divesting themselves of coal near the bottom of the coal market, most of that "seems to be driven more by investment opportunities/profitability rather than anything else." He added that climate change issues have been more of a market driver overseas and could threaten recent opportunities coal producers have found on the export market.

The Unfriend Coal report alleges U.S. insurance companies including "industry giants" in the U.S. such as Berkshire Hathaway Inc., American International Group Inc. and Liberty Mutual Insurance Co. have yet to take "meaningful actions" and have been silent about climate risks faced by their clients.

In a March 17 securities filing, Berkshire called certain shareholders' bid to divest from companies involved with fossil fuels inappropriate.

"The board believes that Berkshire should not limit its universe of potential investments based upon complex social and moral issues," the filing states. "Berkshire's businesses and the companies in which it invests have corporate governance structures in place to comply with state and federal laws, including compliance with state and federal environmental regulations and laws which reduce the environmental impact of their operations."

Berkshire, AIG and Liberty did not immediately respond to a request for further comment on the recent report.

"There's a huge gap between the momentum in Europe and complete inaction in the United States," Peter Bosshard, coordinator of the Unfriend Coal campaign, said in in an interview. "None of the major insurers have taken any action on coal or fossil fuels even though they rely on the same climate science as the rest of the world's major insurers."

Activists plan to share the report broadly with investors and other stakeholders to bring attention to the issue, Bosshard said.

"Insurance companies have a vital self-interest in avoiding catastrophic climate change," the report states. "2017 is on track to become the worst climate disaster year for the insurance industry, and growing areas — for example, exposed coastal properties — are becoming uninsurable."

"I think that they just don't take climate change cost as seriously as European insurers are and they are seeing pretty big impacts to their bottom lines in Europe as a result of having to pay claims from superstorms," Donna Lisenby of the Waterkeeper Alliance said, adding that companies, cities, states and others are already acting on their own. "I think it's really a short-term vision."

The report comes just after Zurich Insurance Group AG announced it will divest from coal and stop offering insurance to companies that depend on coal for more than half of their business. Zurich wrote on Nov. 13 that by ceasing to provide insurance or risk management for new thermal coal mines or for potential new mining and utility clients primarily doing business in coal, the company is taking steps that reflect a "responsible approach to advancing our role in society" and mitigating the effects of climate change.

"As an underwriter, I see this as a balanced approach to viewing climate change mitigation through a risk lens," said Rob Kuchinski, head of global property and energy for Zurich. "It's not about politics or blame. It's about utilizing the immense amount of data and analytics we have from internal engineers, as well as external scientific experts, to guide our view of the future."

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.