Articles from the New York Times and Environmental News Network reported that last month, the world’s largest insurer – American International Group (AIG) – closed its climate change program. AIG was until recently lauded as a leader in the financial services and insurance industry for its GHG activities. According to NYT, AIG had
established new goals by inventorying its greenhouse gases and was collecting offsets for a year’s worth of emissions, developing insurance policies for renewable energy providers, and brainstorming for financial instruments that would assist innovators in the green movement.
With the closing of their climate program, the company is no longer calculating its emissions, ceased efforts to reduce them and canceled its Be Green program, NYT reported.
“Some people were concerned that if you took an advocacy position [on climate change], that might annoy — that’s a good word — clients,” the articles quoted Joseph Boren, the former CEO of AIG Environmental.
Both articles quoted Richard Thomas, former senior vice president of AIG, as saying that AIG’s decision about its climate change program “will retard the development of some of the financial instruments to address some of the issues in climate change.” He pointed out that “AIG was a leader in that area, and now because of so much of what AIG did is in disrepute on the financial product side, I think that sends a chill through everyone.”
What does this mean?
Fundamentally, this demonstrates the unrelenting uncertainty of business risk related to climate management issues in the United States. AIG’s actions are concurrent with federal GHG legislation having passed the House and awaiting Senate action, a President publicly committed to climate action, growing participation in the Climate Disclosure Project (CDP), successful completion of the first phase of RGGI and now Walmart’s supplier sustainability initiative.
Thomas’ statement and the NYT article indicate that some of AIG’s climate solutions were based on complex financial instruments rather than traditional insurance policy structures. This itself presents an array of questions and possible concerns. Certainly, the past year has shown the stark downside of AIG’s management of financial products; public and client concerns about the validity of such mechanisms may be justified.
Companies who had hoped to obtain insurance for various climate-related risks may not be able to do so, at least possibly not to the extent originally envisioned. This places additional burden on companies to identify and assess their climate-related exposures themselves, develop internal management strategies on their own, and reduce reliance on potential insurance policies for financial risk mitigation.