Since the Paris Agreement was signed in 2015, it has only become less likely that the world will meet that treaty’s goals. Emissions must now be halved by the end of this decade to avoid the worst consequences of the climate crisis.
Making finance flows and services consistent with this path is essential not only for the planet, but for the financial sector itself. Munich Re, the world’s largest reinsurance company, adopted a new policy last month that excludes oil insurance and reinsurance.
It’s not a single actor: As of October, 41 insurers — including industry heavyweights like Allianz, Munich Re and Swiss Re — representing 39 percent of the market for primary insurance and 62 percent for reinsurance, have withdrawn or reduced coverage for coal. For oil and gas, these figures now stand at 38 percent of reinsurance and 15 percent of primary insurance markets. Coal companies now face rising premiums of up to 40 percent, reduced coverage and longer searches to access insurance.
Still, insurance and reinsurance companies need to move faster. For example, Lloyd’s of London announced in 2020 that it would stop insuring fossil fuel projects by 2030. But last year it issued guidance suggesting that this policy is optional for agents. According to the global campaign group Insure Our Future, many other insurers continue to insure new oil and gas projects in defiance of climate science and evidence.
As Russia’s war on Ukraine continues, the fossil fuel industry sees an opportunity to build new infrastructure around the world. Governments desperate for revenue are falling for the promise of quick returns and opening their doors to these companies.
But insurance companies should remain cautious – backing investments in oil and gas will only become more dangerous.
One of the riskiest investments on offer today is in the Democratic Republic of the Congo (DRC). In July, it auctioned the exploration rights for 30 oil and gas blocks in an area of about 277,000 sq km (106,950 sq mi) – larger than the size of the United Kingdom.
Some of the blocks overlap with protected areas, including Virunga National Park, a World Heritage Site threatened by armed conflicts and now by the prospect of drilling. It is home to the Batwa and other local communities who face violence and discrimination, as well as 3,000 species of animals, including the critically endangered eastern gorilla.
Other blocks are in the peatlands of the Cuvette Centrale, which acts as a sink storing about 30 gigatons of carbon, equivalent to three years of global fossil fuel emissions.
Simon Lewis, a professor at Leeds University and head of a British-Congolese research group called CongoPeat, called the DRC blocks “the worst place in the world to drill for oil”. Lewis warned that there may not be significant oil deposits beneath the Congo forests, and if there is, it may not be economically viable to get it from extremely remote areas to global markets. Even if exploration turns up no oil fields on a commercial scale, it will seriously damage the rainforest’s biodiversity.
Apart from the DRC, Russia’s war in Ukraine and rising energy prices were also among the triggers of a new scramble for fossil fuels across Africa – from Senegal through Namibia to Uganda.
The International Energy Agency (IEA) has said the world needs a full bar on all new fossil fuel investments to reach net-zero emissions by 2050, a minimum goal set by the IPCC, the United Nations’ panel of experts on climate change, was outlined.
That prescription is particularly important for Africa, where oil production is often higher carbon intensity than elsewhere — the equivalent of about 40 percent more carbon dioxide per barrel.
Africa and the wider global South are also often the worst sufferers of the effects of climate change. In October, Nigeria reported nearly 800,000 displaced and 500 dead as a result of floods, while Pakistan is still dealing with the aftermath of devastating floods that drowned a third of the country. In Somalia, one million people have been displaced by a drought after a two-year historic drought. And the list goes on.
The new scramble for fossil fuels also has devastating implications for human rights. Exploration and drilling rights are awarded in ways that sacrifice natural ecosystems that have served local and indigenous communities for centuries. In the DRC, communities were not even informed until their land was auctioned.
Insurance companies have enormous power to force change. Without insurance, most new fossil fuel projects cannot proceed and existing ones must close. As the Insure Our Future Coalition – which ranks the world’s leading insurers based on their fossil fuel divestment policies – has demanded, ending insurance for new oil, gas and coal projects is essential. It is also critical to phase out support for existing projects and for insurers to sell all assets of coal, oil and gas companies that are not aligned with a path that limits the planet’s temperature increase to 1.5 degrees Celsius (2.7 degrees Fahrenheit) does not limit.
Finally, insurers must maintain robust due diligence and verification mechanisms to ensure that clients fully respect and observe all human rights.
This is essential for the world, but also a sensible business strategy for insurers: Projects in the DRC and other such vulnerable ecosystems probably represent the worst deals in the world to insure. They are best avoided – for everyone.
The opinions expressed in this article are the authors’ own and do not necessarily reflect Al Jazeera’s editorial position.