The world’s biggest climate finance coalition is looking to convince global insurers and reinsurers that have earlier pulled out of the coal business to now consider providing coverage for transactions that involve the early retirement of coal plants, particularly for those in Asia.
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Facing pressure from shareholders, regulators and environmental groups to cut emissions from the single largest contributor to global warming, at least 51 insurers and reinsurers across the globe such as Allianz, AXA and Swiss Re have adopted coal exit policies in recent years, following similar moves by banks.
But as momentum builds to shut down Asia’s relatively young coal fleet of over 5,000 plants, the Glasgow Financial Alliance for Net Zero Asia Pacific (GFANZ APAC) network wants to get the big players in the insurance industry to reconsider their role in the region’s coal phase-out plans.
Speaking at New York Climate Week last Thursday, Yuki Yasui, managing director of GFANZ APAC said that bringing insurers and reinsurers back into the conversation could help reduce the costs involved in the inherently loss-making endeavour of shutting down coal-fired power plants ahead of schedule. The event was organised by Singapore-based advisory firm Sustainability Economics, which aims to make the transition from coal to renewables profitable for asset managers with a new platform called Clean Energy Mechanism (CLEM).
“A lot of insurers and reinsurers that used to provide insurance for power purchase agreements (PPAs) and coal projects have all come out of the market, at least all the reputable ones from Europe and the United States. So the price of insuring the PPAs and output guarantees have become very expensive in the market,” Yasui said.
Yasui gave the example of initiating the discussion with signatories to the United Nations Environment Programme Finance Initiative (UNEP FI)’s Principles for Sustainable Insurance – many of whom have taken their businesses out of coal. That would be “very interesting”, she said.
The trend of insurers retreating from coal sent premiums soaring to almost three times the industry benchmark in 2022, according to data from brokerage Willis Towers Watson.
At the COP28 climate summit last December, GFANZ released its finalised guidance for how financial institutions can credibly support managed coal phase-out projects in Asia.
Since its release, at least seven banks operating in the region have signalled that they are open to fund the early retirement of coal. These include European lenders HSBC and Standard Chartered Bank, all three Singapore banks DBS, OCBC and UOB, as well as Japanese megabanks Mizuho and Sumitomo Mitsui Financial Group (SMBC).
Last November, Swiss Re told Eco-Business that providing insurance capacity for the decomissioning of coal plants is in line with their commitments to exit coal by 2030 and shared that it has provided coverage to a private thermal coal plant in Southeast Asia after the owner presented an detailed plan of how it will accelerate the shut down of its operations.
Elsewhere in the region, Filipino conglomerate Ayala’s energy business arm ACEN sucessfully got its insurance plan renewed for the South Luzon Thermal Energy Corporation (SLTEC) coal plant in 2022, after publicly committing to halve the operating life of the barely a decade old power plant.
Under the Singapore central bank’s pilot of transition credits – a novel class of carbon credits generated from coal phase-out projects – announced at COP28, the decomissioning date of SLTEC has been brought forward to as early as 2030.
At the event last week, Sustainability Economics updated that it has submitted its transition credits methodology – the latest to come out following drafts released by the Coal to Clean Credit Initiative (CCCI) and Gold Standard – to Singapore-based certifier Asia Carbon Institute to review.
While Sustainability Economics has not revealed any CLEM pilot projects, the firm announced a partnership with Indonesian state-owned entity PT SUCOFINDO in July to hasten early coal retirement across the archipelago, which has been struggling to shutter its first coal plant under the Asian Development Bank’s energy transition mechanism.
