Insurers shun Adani’s Carmichael mine, reflecting the industry’s retreat from coal

To date, over three dozen financial institutions have made commitments to not finance the project, and after spending nearly a decade in search of the funds, Adani finally announced in November 2018 that it had secured the billions of dollars necessary to build the mine. Who was the mysterious investor? Turns out it was the Adani Group itself. You can only imagine how desperate a company would need to be before committing to fund a project requiring billions of dollars off its own balance sheet after a years-long search for an investor.

But the campaign over Adani’s Carmichael mine is far from over. Insurance is one area where Adani also needs financial support. In fact, insurance is a critical piece required to obtain government permits and start construction, and a growing campaign targeting insurers to accelerate the transition to a clean energy future has taken note.

In December 2018, the Global Unfriend Coal campaign and allies – representing 73 organisations and a combined membership of more than 76 million people – sent a letter calling on 35 major global insurers to not insure the proposed Carmichael coal mine and associated infrastructure. Given the number of responses that were received within two weeks of sending the letter, the insurance industry is clearly feeling the pressure to avoid highly controversial coal projects.

10 companies immediately responded to Unfriend Coal’s call to not insure the project, either explicitly stating their refusal to be involved or referencing existing coal restriction policies that applied in this case. These included the world’s biggest insurers and reinsurers, Allianz, AXA, Swiss Re and Munich Re; two of Australia’s largest infrastructure insurers, QBE and Suncorp; the first major US insurer to publicly rule out a coal project, FM Global; as well as major European insurers Generali, Zurich and SCOR. Since then, two additional companies have announced restrictions on coal underwriting that would rule out involvement with the mine: Mapfre and Uniqa.¹

For the insurers that have not yet ruled out supporting Adani, the pressure is now building. Last month, lawyers at ClientEarth wrote to Lloyd’s warning them of the financial risks surrounding the project and warning: “Should you or your syndicates fail to take these factors into account as part of your risk management processes, this may constitute a breach of your legal duties.”

Politically, Adani is still yet to obtain critical approvals, while it can look forward to finding its proposed coal mine front and centre of the upcoming federal election campaign, with environmentalists calling for its approvals to be withdrawn.

Most people have a reason to be worried about the Carmichael mine. The climate concerns are obvious but the focus on the greenhouse gas emissions it would create often neglects the fact that traditional owners are still contesting Adani’s Indigenous Land Use Agreement in the Federal Court. And of course, if we can expect a contraction of the global seaborne thermal traded coal market in response to efforts to reduce greenhouse gas emissions, throwing another 27 million tpy onto the market does not exactly help other coal exporters, already faced with structural challenges.

A lot has changed since 2010, when Adani originally bought the land for the mine. Not least, the world has experienced another decade of record global temperatures, the impacts of climate change causing the insurance sector to question its own existence, and our understanding of how deeply and urgently cuts to greenhouse gas emissions need to be made all the more acute. According to both the International Energy Agency (IEA) and Intergovernmental Panel on Climate Change (IPCC), the role of coal in the global energy mix must rapidly diminish to the point of virtual non-existence in 30 years’ time to meet the goals of the Paris Agreement on climate change.

A growing number of insurance companies are taking action. 11 insurers have stopped or restricted their coal underwriting practices, as of March 2019. According to the insurance broker Willis Towers Watson, these policies have led to a “significant reduction in available capacity” and “may help to accelerate the global retreat from coal.”²

Since Adani’s purchase, Australia has had five Prime Ministers. Climate change policy has swung from effective to useless, from market-based solutions under the Labor government to interventionist programs under the Liberal government. 51 companies have distanced themselves from the Adani project. Emissions fell, then rose again. But one thing has remained constant: Adani’s proposal to build Australia’s largest thermal coal mine.

References

1. https://www.marketforces.org.au/info/key-issues/theadanilist/insurers-stopadani/
2. https://willistowerswatson.turtl.co/story/power-and-renewable-energy-market-review-2019-online