Lloyds of London finally agrees to divest from coal

Insurance giant Lloyds of London has promised to end investment in coal, oil sands and fossil fuel exploration in the Arctic, following years a pressure from climate campaigner.

The commitment was made in the firm’s first comprehensive ESG strategy, published earlier this week. It will see Lloyds of London will end new investments in the most aggressive forms of fossil fuel extraction by 1 January 2022, and phase out existing investments through to the end of 2025.

For a company to be subject to phase-out, it will need to derive 30% of its revenues or more from coal-fired power plants, thermal coal mines, tar sands, oil sands or Arctic energy exploration.  

Fossil fuel companies insured between now and 1 January 2022 will see their contracts come up for renewal by 2030, at which point they will likely be denied reinsurance. Some green groups like SumOfUs and Insure Our Future have argued that Lloyds of London should have simply agreed not to provide new contracts with immediate effect.

Lloyds of London has also set a target for members to derive at least 2% of their premium from sustainable products by 2022. Markets like electric vehicles fall into its description of a “sustainable product”.

Lloyds of London has faced criticism from green groups for several years, because its members have insured controversial projects like the Adani coal mine in Australia and the Trans Mountain oil pipeline in Canada, which were both opposed by indigenous people’s groups.

These decisions were taken at a time when many other large insurers in Europe were exiting coal and tar sands – or at least reducing investment, insurance and reinsurance. Businesses like BNP Paribas, AXA and Zurich have taken this move.

A report from Unfriend Coal concluded that, even before the Covid-19 pandemic, the thermal coal sector was “becoming uninsurable” amid a backdrop of stronger green legislation and changing investor demands. According to the IEA, the world has seen the largest decline in coal consumption since World War Two as a result of coronavirus.

‘An important milestone’

Lloyds of London’s chairman Bruce Carnegie-Brown, who also heads its ESG committee, said the firm “has the opportunity to play its part in building back a braver, more resilient world” after Covid-19.

“We recognise that the targets we are setting will be challenging, but will also bring new opportunities,” he said. “We will work closely with our market and customers to help them plan for these changes as we implement a long-term managed programme towards sustainable, responsible underwriting.”

The company is developing a new risk centre, to launch next year, to support the delivery of the new strategy. Staff within the centre will be tasked with assessing climate and other environmental risks and with developing new sustainable financial products.

The new ESG strategy also outlines measures for Lloyd’s of London to reach net-zero operational emissions by 2025.

Sarah George