McKibben stated that changing investment patterns was a critical lever to the net-zero carbon future. While acknowledging Allianz has made significant steps to move away from investments in fossil fuels, he challenged Thallinger as to why the insurance industry continues underwriting new projects for the fossil fuel industry given the existential challenge climate change poses for the planet.
“How to change away from fossil fuels is critical,” Thallinger responded. “Leading insurers have made 1.5 degree commitments for their investment portfolios, including short-term commitments to change their portfolios (editor’s note: UN-convened Net-Zero Asset Owner Alliance with targets for 2025). Today, most insurers have a position on fossil fuels and are screening every fossil fuel project against sustainability criteria. I expect that soon the leaders – for example, the members of the net-zero alliances – will require transformation pathways compliant with 1.5 degrees from companies – also companies from the Oil and Gas sector.”
Günther Thallinger is chair of the UN-convened Net-Zero Asset Owner Alliance (AOA), an organization of 71 asset owners with more than $10 trillion in assets under management. The members are committed to transitioning their portfolios to net-zero greenhouse gas (GHG) emissions by 2050. He acknowledged that financial institutions have a pivotal role in rapid decarbonization and emphasized the complexity of an orderly transition away from fossil fuels, especially when it comes to social matters.
A “just transition” to a low-carbon economy involves minimizing disruption for workers and communities, especially in developing regions where oil and gas will continue to be essential elements in the energy mix for some more time. Therefore, engagement with fossil fuels industries is essential to ensuring an orderly transition.
“If the energy supply is disrupted to those who need it and consume it,” Thallinger said, “people will react. What many fear is those individual contributors to the world’s complicated energy network start to depart.”
The AOA has signaled members are willing to face short-term effects on portfolios by investing long term. However, Thallinger argued that companies could not achieve a transition to a low-carbon future alone. What is also essential is for governments to set explicit policies to help steer the transformation.
Thallinger said financial institutions could provide the finance necessary to transition together with state-owned funds. “There is no hurdle to implement this. The vehicles are tested, everything is there. But what is really necessary is to understand how energy provision for an entire country will look in ten- or 20-years’ time for entire countries. For developed regions, such as the EU, this is pretty clear. Here, it’s about the ways to get there, the short- and mid-term legislation needed to achieve this 2030, 2040 vision."