California Insurance Commissioner Ricardo Lara on Monday, April 18 issued a new report and web page detailing insurance companies’ investments in fossil fuels as part of his comprehensive effort to protect consumers from the impacts of climate change. The report is the most exhaustive study of fossil fuel investments by insurance companies ever done by any U.S. state. For the first time, the report identifies insurance company holdings in green bonds that support clean energy investments and other environmental projects, helping consumers and the California Department of Insurance measure insurance companies’ progress toward fighting climate change.
“We need more climate-focused investments to solve our climate crisis, including from insurance companies that must do more to protect consumers and the environment,” said Insurance Commissioner Ricardo Lara. “For the first time, we are disclosing fossil fuel investments while also measuring insurance companies’ commitment to sustainability through their investments in green bonds. This report is part of my continued comprehensive strategy to address insurance companies’ fossil fuel exposures and hold them accountable while letting consumers judge these companies’ progress on climate action for themselves.”
Californians can visit the Department’s website and type in the name of their insurance company to find out what percentage of their premiums are invested in fossil fuels. For example, the new report shows insurance companies continue to be heavily invested in fossil fuels, including carbon-intensive tar sands, which is one of the most environmentally destructive forms of oil extraction. Although investments in green bonds doubled from 2018 to 2019, the portion of investments in green bonds is small compared with the overall investment potential of the insurance industry. The data comes from publicly disclosed 2018 and 2019 financial investment information, which was analyzed by S&P Global.
Insurance companies use investments to help pay claims, which is why disclosure of potentially risky investments is needed. While climate change is increasing threats to the public from wildfires, flooding, and heat waves, it also poses a potential significant risk to the value of insurance investments and the ability for insurance companies to meet their financial responsibilities, including policyholder claims, if they do not have sustainable strategies in place.
California is the nation’s largest insurance market and fourth largest insurance market in the world, and Commissioner Lara is working with other states to enhance climate disclosures at the national level. He led a bipartisan effort by the National Association of Insurance Commissioners to adopt a new global standard for reporting insurance company climate risks on April 8 in alignment with the Task Force on Climate-Related Financial Disclosures, or TCFD. Insurance regulators from France, Switzerland, and the United Kingdom currently require TCFD-aligned reports. U.S. financial regulators such as the U.S. Securities and Exchange Commission are also taking steps toward requiring TCFD-aligned disclosures for other financial institutions.
While 28 insurance companies provided TCFD-compliant reports in 2021, this list will grow to nearly 400 insurance companies and groups – representing nearly 80 percent of the regulated U.S. insurance market – as a result of this action.
The Department’s new website and report are one piece of a “Sustainable Insurance Roadmap” that Commissioner Lara is finalizing with the United Nations that includes increasing green investments, sustainable insurance products, and nature-based solutions as the core of the strategy.
Commissioner Lara initiated the report in 2020, building on previous efforts of the Department and ongoing efforts at the federal level to increase climate disclosures for other financial institutions.
“Since insurance is regulated by states, we regulators need to work together to protect consumers by reviewing insurance companies’ exposure to climate risks and their progress towards sustainable investments,” said Washington State Insurance Commissioner Mike Kreidler, who has worked with California and other states on increasing climate disclosures. “Efforts such as this one initiated by California Insurance Commissioner Lara can encourage insurers to help get us on the path to net-zero carbon emissions. Identifying both fossil fuel investments as well as investments in green bonds, which decarbonize insurer portfolios, is a sensible approach.”
“Increased transparency around the holdings and climate risk exposure of institutional investors is a key first step to aligning the finance sector with net zero,” said Andrew Howell, Director of Investor Influence at Environmental Defense Fund. “We welcome this analysis from the California Department of Insurance as insurers explore how best to leverage their financial influence to accelerate the energy transition.”
