There Goes The Neighborhood: Lloyd’s Drops Coal Like A Hot Potato

As if 2018 isn’t beginning badly enough for the US coal industry, over the weekend word dropped that Lloyd’s of London is dropping out of the coal market. Other leading firms have already staked out their position in the low carbon economy, but losing the support of the world’s oldest and most iconic insurance company is a sure sign that the coal industry is reaching the point of no return.

Et Tu, Lloyd’s?

The Guardian has the scoop on the divestment news from Lloyd’s. The company has been slow to act compared to others in the insurance field, but it’s on the hook for $4.5 billion in payouts just for damages attributed to hurricanes Harvey and Maria alone. It seems that the cascade of climate-related catastrophes in 2017 finally provided the bottom line motivation to act. Slow or not, this Johnny-come-lately will have an outsized impact on fossil fuel divestment.

Lloyd’s isn’t really just one insurance company. It runs a marketplace-style underwriting model with more than 50 leading insurers under its umbrella.

Here’s a snippet from The Guardian (do read the full piece for details):

The firm has long been vocal about the need to battle climate change, with insurance one of the worst affected industries by hurricanes, wildfires and flooding in recent years. The insurance market decided last month to implement a coal exclusion policy as part of a responsible investment strategy for the central mutual fund that sits behind every insurance policy written by the Lloyd’s market.

That does leave a bit of wiggle room, as a Lloyd’s executive cited by The Guardian explains:

That means that in the areas of our portfolio where we can directly influence investment decisions we will avoid investing in companies that are involved mainly in coal.

The Lloyd’s Stealth Attack On Coal

When it comes to climate action, Lloyd’s has been flying under the CleanTechnica radar. Sure, we’ve covered Loyd’s Register and Lloyd’s Bank, but those companies are not related to Lloyd’s of London.

Lloyd’s has been active behind the climate action scenes for a number of years. For example, it is a partner in the Global Resource Observatory, a project of the UK’s Anglia Ruskin University’s Global Sustainability Institute that examines how “resource scarcity will impact global social, financial and political fragility.” One of three key areas of research undertaken by the Global Sustainability Institute is risk and resilience:

For every resource examined, the overall trend is one of more expensive extraction and increasing prices. In addition, the environmental damage caused by the use of these resources is becoming increasingly expensive – in particular climate change and biodiversity loss.

In 2010 Lloyd’s produced a report titled, “Sustainable energy security,” which highlighted climate change among its findings:

Surging energy consumption, constraint on conventional fuel production and international recognition of the impact of carbon dioxide on the climate means businesses need to adapt to a new low carbon world.

The report was produced just before the US shale gas boom took full force. It noted that coal consumption was accelerating faster than other fossil fuels, despite its “high CO2 emissions per unit of energy (two to three times more CO2 than natural gas when burned in conventional thermal power plants).”

In 2014 the head of exposure management at Lloyd’s, Trevor Maynard, emphasized the central role of climate change in an interview with CNBC:

Climate change is having a direct impact on the business community and the bottom line. That is an important point – it [sic] not an environmental subject, it is an economic subject.

More recently, Lloyd’s has been preparing for a low carbon future by taking a close look at the potential social and political impacts of rapid decarbonization. In a February 2017 report titled “Stranded Assets: the transition to a low carbon economy,” the company asserts that “asset stranding is part-and-parcel of the creative destruction seen in any market economy,” but the potential for “higher rates of stranding” in global decarbonization adds another element of risk.

Here’s a snippet from the report’s “Focus on coal” section:

Although the value of coal reserves at risk of stranding under a 2°C scenario is a quarter of that of oil, upstream coal assets are under more immediate threat from climate change regulation and social opposition.

Ya don’t say?

The news about Lloyd’s adds another dollop of pain onto the woes racked up by the US coal industry under the tenure of President* Donald Trump.

Despite Trump’s appeal to US coal miners and their communities, US electricity providers are continuing to bar the door against new coal power plants, coal producing states are bracing for the impact of decarbonization, one major coal producer has declared bankruptcy, at least one coal mine is shutting down, and Trump’s own Energy Department is helping to accelerate renewable energy grid integration and pushing ahead with massive renewable energy projects.

Although Lloyd’s sees coal shouldering the highest risk, oil and gas stakeholders are not off the hook either. Last month, the World Bank said it would no longer finance upstream oil and gas projects except in certain limited circumstances.