Large share of EU insurers' investments not aligning with Paris Agreement targets

On the 07/31/20 at 4:07PM


Adrien Paredes-Vanheule

Data from the European pensions and insurance watchdog Eiopa suggests ‘dirty’ sectors may form up to 10% of EU insurers’ overall investments.

The EU insurance and pensions market authority Eiopa is currently assessing key financial risks embedded in portfolios of European insurers in the context of a low-carbon transition. The regulator unveiled its preliminary findings in its financial stability report released on 30 July. Eiopa’s data suggests that 15.3% of European insurers’ overall equity and corporate bonds investments are likely to be in automotive, coal, oil & gas as well as power generating sectors. Eiopa estimates that EU insurers have poured a total €716.7bn into these sectors through equities and debt, especially in the power generation sector (€350.4bn). Amounts of €226.4bn and €89.3bn are held via stocks and corporate bonds of the oil and gas and automotive sectors respectively. Coal-related shares and debt of European insurers are together valued at €50.7bn by Eiopa.

The watchdog assumes that they together form 6.8% of the overall investments of European insurers. In detail, the power sector would form 3.3% of EU insurers’ overall investments, oil and gas 2.1%, automotive 0.8% and coal 0.5%.  “An additional 3% of total investments is likely to be in aviation, cement, shipping and steel production. That means that overall investments in key climate-relevant sectors is likely to account for more than 10% of the total investments,” it said.

“The findings also indicate that a large share of these investments (by amount) are not aligned with scenarios limiting global warming to less than 2 degrees Celsius (a target in the Paris agreement). As climate risks are forward looking and characterised by deep uncertainty, and climate policies may be sudden and not fully anticipated and priced by investors, this could indicate a potential risk of re-pricing or even stranded assets in the portfolio of insurers in the longer term.”

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