Facts trump rhetoric on oil and gas divestment

Mark Milke and Lennie Kaplan, Financial Post, February 19, 2021

Axa, Zurich and Swiss Re are divesting and de-insuring a major Canadian industry while helping autocracies and tyrannies stay in business

Over the past two years, three European insurance companies — Axa, Zurich and Swiss Re — have announced plans to stop insuring Canadian oilsands projects and reduce or entirely eliminate investments in the oil and gas sector. The reason offered is the standard refrain: assumed higher carbon emissions per barrel of oil in Canada.

That argument has always been shaky. Once you account for economic growth and thus obtain apple-to-apple comparisons of greenhouse gas emissions, GHG emissions intensity has been falling in Canada (by 30 per cent since 2000 per billion dollars of GDP). The decline is also evident in the details, whether measured per person, per unit of GDP, per unit of energy used or per barrel of oil produced.

In Alberta’s oilsands, specifically, emissions intensity has also been falling and that is expected to continue over the next two decades. Between 2011 and 2018, oilsands emissions intensity fell 22 per cent per barrel of oil in what’s known as CO2e (carbon dioxide equivalent).

Beyond the Canadian numbers, though, investors and insurance companies worldwide should take into account another reality: Canada’s data are detailed, open and reliable. In contrast, statistics from companies located in autocracies or outright tyrannies have questionable credibility. That’s because the closed and often repressive nature of such regimes works against truth-telling. (If you work in Russia for a state-owned oil firm, do you really want to inform President Vladimir Putin about your lousy results?)

The state-owned Saudi Arabian oil firm, Saudi Aramco, was just outed for omitting up to half its carbon emissions impact. “Selective accounting helps burnish the low-carbon claims made on behalf of Saudi oil, which have become a key part of Aramco’s corporate identity,” is how one media report characterized the problem.

Beyond questionable statistics from state-owned companies in non-democratic nations, the race to de-insure and divest from Canada’s oil and gas is especially regrettable — others may use stronger language — considering that Axa, Zurich and Swiss Re invest and insure in nations with abysmal human rights records.

On that point, we matched up rankings from Freedom House, a think-tank that uses multiple freedom measurements to categorize countries as Free, Partly Free and Not Free, with data about where the insurance companies Axa, Zurich and Swiss Re still invest.

What we found, as you can read in our new report on the Canadian Energy Centre website, is that, despite announcing a pull-back in their investments in and property and casualty (P&C) coverage of oilsands projects in Canada, Axa, Zurich and Swiss Re continue to invest in and provide P&C insurance coverage in many “Not Free” countries.

As of 2019, that list included Saudi Arabia, Russia, China, the United Arab Emirates, Turkey, Nigeria, Iran, Iraq, Qatar and Oman. In total, Axa, Zurich and Swiss Re had $17.9 billion invested in “Not Free” countries, including $392 million in Iran, $638 million in Qatar, $1.1 billion in Saudi Arabia, $1.7 billion in Russia, $5.2 billion in China and $6.7 billion in Turkey.

Meanwhile, Axa, Zurich and Swiss Re also wrote P&C insurance premiums in many of those same countries. Those premiums were worth $2.9 billion to the three insurance firms in 2019. Expand beyond Axa, Zurich and Swiss Re, to the entire insurance sector worldwide, and the numbers grow — massively. According to the Insurance Information Institute, non-life premiums, including P&C insurance premiums, written for “Not Free” countries in 2018 totalled about $317 billion, including almost $6.7 billion in Iran, $9.1 billion in Saudi Arabia, and over $261 billion in China.

The insurance industry has also written up non-life premiums worth $16.4 billion in Russia. That’s where a court just jailed that country’s opposition leader, Alexei Navalny, for three and a half years. This came after the failed attempt — widely blamed on Putin — to murder Navalny with poison in August 2020.

It’s true that insurance coverage in “Not Free” nations is only about 13 per cent of total worldwide non-life premiums. But that misses the point. Canada, a cold, northern country with a massive oil and gas sector, has an impressive record on getting carbon emissions intensity down. Most of the “Not Free” nations, in contrast, have done little on carbon emissions — or fudge the data (see: Saudi Aramco) and are not doing anything to improve their freedom rankings.

On every other measurement that should matter to insurance executives and their staff the world over, Canada is a beacon of civil, political and economic rights. But Axa, Zurich and Swiss Re are divesting and de-insuring a major Canadian industry while helping autocracies and tyrannies stay in business.

Mark Milke and Lennie Kaplan are with the Canadian Energy Centre, an Alberta government corporation funded in part by carbon taxes. Image credit: Pixabay.