Insurers – Fossil fuels
Coal exit
Scope of application
In order for a policy to be truly binding on a financial player, certain points need to be clarified, particularly with regard to the policy’s scope of application. In the case of a sector-based policy such as coal or hydrocarbons, the following elements need to be specified: the scope of the policy, in this case the value chain of coal-related activities, and the financial activities concerned by the policy.
New projects
In addition to exclusionary strategies aimed at disinvesting more or less gradually in the sector, the player may decide to stop investing in new projects linked to the coal chain of activity. New projects are an area to be treated differently from other assets, as they involve the financing of assets that have a life of more than 30 years. A coal mine planned today will continue to operate after 2050. This is the date often used to achieve ‘carbon neutrality’. As a reminder, carbon neutrality can only be achieved at the global level; at the level of financial institutions and companies in general, we speak of a contribution to carbon neutrality, as ADEME points out in its March 2021 note.
Financial activities covered
Commitment or exclusion strategies can be applied to one or more assets, or to the entire financial portfolio. In the case of insurers, this is divided between direct investments, dedicated funds/management mandates (active) or a selection of open-ended funds. An insurer chooses whether to apply its coal policy to all new investments and inventories, or only to new investments.
Terms and conditions
In order for a policy to be truly binding on a financial player, certain points need to be specified, in particular how the policy is to be implemented. In the case of sector-based policies such as coal or hydrocarbons, the following elements need to be specified: the strategy’s inclusion in a timetable, and the measurability of the policy, corresponding in this case to the types of exclusion thresholds applied.
Calendar
In order to comply with the Paris Agreement and maintain a trajectory aligned with limiting global warming to 1.5°C, financial players must divest from the coal sector, with an exit timetable of 2030 in EU countries and 2040 in the rest of the world. French insurers have therefore used these timetables to draw up exit strategies, and some have proposed more ambitious timetables than those recommended. Thresholds are set and regularly reviewed to achieve the exit target at the dates presented below.
Exclusion strategy
Exclusion (or disinvestment) involves not investing in new coal-related projects, as well as stopping financing already carried out in the sector according to thresholds and activity perimeters defined by the player.
Threshold type
Absolute thresholds are exclusion criteria enabling players to make the transition away from coal. In a coal exclusion policy, a player stops doing business with companies that have thermal coal-fired power generation capacity of more than X GW, or annual production of more than X MT. (X being the absolute threshold).
Relative thresholds are also exclusion criteria. In a coal exclusion policy, a player stops all activity in companies whose coal-related activities represent more than X% of their sales, or where coal represents more than X% of their electricity production capacity (X being the relative threshold).
Exposure to players in the coal industry
Exposed assets
The exposure of management companies to coal industry players is calculated on the basis of the amounts invested in mining companies and energy companies that produce electricity from coal, as listed in the GCEL. Investments in companies upstream or downstream of the value chain, or that use electricity produced from coal, are not included in this calculation. Investments in companies upstream or downstream of the value chain, or which use coal-fired electricity, are not included in this exposure calculation. Methodological point: The list of companies in the GCEL evolves according to the criteria adopted by the NGO Urgewald each year, and changes in the companies’ activities. You will therefore find the exposures calculated on the basis of the GCEL 2021 and 2022 lists, in order to integrate these changes in scope and clarify the comparison from one year to the next.
Getting out of oil and gas
Definitions of unconventional hydrocarbons
Unconventional hydrocarbons refer to fossil resources that are more difficult to exploit, requiring extraction techniques other than those required by traditional oil wells, and thus generating environmental risks. There are many reasons for this difficulty of exploitation: burial in rocks with low permeability and porosity, particular viscosity, sensitive location or drilling depth at high temperature and high pressure. In the GOGEL, unconventional fossil energies are considered to be :
- shale oil and gas ;
- oil and gas from tar sands ;
- ultra-deepwater drilling (+ 1,500 m);
- Arctic oil and gas;
- ultra-heavy oil;
- coal seam gas.
Exclusion strategy
Financial activities covered
Exclusion strategies can be applied to one or more assets, or to the entire financial portfolio. In the case of insurers, this is divided between direct investments, dedicated funds/management mandates (active) or a selection of open-ended funds.
New investments
In addition to exclusionary strategies aimed at disinvesting more or less gradually in the sector, the player may decide to stop investing in the (unconventional) oil & gas sector. An insurer chooses whether to apply its (unconventional) oil & gas policy to all new investments and inventories, or only to new investments.
Exposure to players in the oil and gas industry
Exposed assets
Insurers’ exposure to oil & gas industry players is calculated on the basis of amounts invested in mining companies and energy companies that produce electricity from oil & gas, as listed by GOGEL according to the calculations requested by the ACPR. Investments in companies upstream or downstream of the value chain, or which use electricity produced from oil and gas, are not included in this exposure calculation.