Aviva plc will target 2.5 billion pounds ($3.9 billion) of investments in renewables and energy efficiency over five years to cut exposure to climate risks.
The company, which manages about 250 billion pounds of assets, will embed carbon risk into its investment decisions and seek assurances from fossil-fuel companies that they’re investing in emissions-cutting technologies, Chief Executive Officer Mark Wilson said Friday at the insurer’s London office.
“As an investor, we’re going to challenge fossil-fuel companies to look longer term and to the lower carbon economy,” Wilson said in a speech. “We will ask how much they are investing in lower carbon technology and development and when they will deliver.”
Aviva joins insurers including Allianz SE and AXA SA in seeking investment opportunities in low-carbon assets. A report commissioned by the U.K. insurer showed in an “average” scenario with temperatures warming by just over 4 degrees Celsius (7.2 degrees Fahrenheit), climate change will wipe $4.2 trillion off the value of global assets this century at current prices.
“This isn’t a recession or a financial crisis or a regular part of the business cycle,” said Monica Woodley, editorial director at the Economist Intelligence Unit, which prepared the report. “Losses from climate change do not merely represent market volatility or isolated events but permanent inherent impairments to total assets.”
‘Greatest Market Failure’
The study showed warming of 6 degrees would cause losses to investors totaling $13.8 trillion. That’s against an asset base of $143 trillion held by non-bank financial institutions, including insurers and pension funds. Losses from a government perspective, including social costs, would be greater, at $13.9 trillion for the average scenario, $43 trillion for a 6-degree future.
“These are risks that we can literally not afford to take,” Wilson said. “This would be by far the greatest market failure of all-time.”
Wilson said Aviva, Britain’s second-largest insurer by market value, will invest 500 million pounds a year over five years in low-carbon technologies, and that it’ll also divest from fossil-fuel companies that it deems aren’t making enough progress moving toward a less-polluting future.
Aviva and other insurers are investing in energy and infrastructure assets to help generate income that will meet long-term pension liabilities.
Germany’s Allianz, one of the biggest institutional investors in clean energy, has raised its annual budget for renewables by about 75 percent to 350 million euros ($383 million), bringing total investments in 2015 to 500 million euros. AXA Chief Executive Officer Henri de Castries in May said he’s working to sell 500 million euros of coal assets and triple “green investments” to 3 billion euros by 2020.
Wilson said Aviva will engage with governments and ministers to make the case for business at a United Nations conference in Paris in December where envoys from 194 nations aim to devise a new global agreement to fight climate change. He told U.K. Energy Secretary Amber Rudd, who also delivered a speech at Aviva, that she might feel “the heavy hand of history” at the climate talks.
“Paris should not be a talk-fest enabling huge compromises and a lovely fluffy statement at the end,” Wilson said. “It is our one big opportunity to sort it out.”
–With assistance from Sarah Jones in London.
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