New CEO Peter Zaffino must change course
By David Arkush
Today, AIG Chief Operating Officer Peter Zaffino takes the reins from current CEO Brian Duperreault. We have high hopes for Zaffino. AIG has a shameful record on climate, and Zaffino has the chance to turn it around.
What has AIG done? Nothing. And that’s the problem. Many other insurers globally are starting to phase out their fossil fuel business and investments, but all AIG has done is offer nonsensical excuses for continuing to insure fossil fuels. Here is Duperreault at a conference on February 18, 2021:
If you say, “We’re not going to cover any new coal-fired utilities” . . . That’s fine. But what about the ones that are still in existence? What are you doing there? How do you frame an approach in a transition?
Apparently, Duperrault is so flummoxed by this dilemma—how do you swear off insuring new coal projects when others still exist?—that AIG has done exactly nothing to stop propping up fossil fuels. Here’s another AIG excuse from its 2019 Climate-Related Financial Disclosure Report:
[W]e do not feel it would be in the best interest of global sustainability and addressing climate risk to suddenly stop insuring clients that are heavy users or producers of fossil fuels.
Of course, no one is asking AIG to “suddenly stop” insuring all fossil fuel production. (Also, if getting out of fossil fuels isn’t “in the best interest of . . . addressing climate risk,” what is?)
As for how to “frame an approach” for a transition away from fossil fuels, that’s called a phaseout. Duperreault should know about it. We sent him a copy of Insure Our Future’s 2020 Scorecard on Insurance, Fossil Fuels, and Climate Change, which shows that a large and growing number of other insurers are doing precisely what he wouldn’t. As of that publication, 23 major insurers had adopted policies to end or limit their insurance services for the coal sector (the total is now 26). Ten policies limit services for tar sands oil clients. After the 2020 Scorecard was issued in early December, Lloyd’s of London adopted a policy requiring its syndicates to phase out underwriting coal, tar sands oil, and Arctic drilling by 2030. Among U.S. insurers, Liberty Mutual, The Hartford, Chubb, and AXIS Capital all have at least some basic policies reducing coal underwriting.
While others are reducing or ending fossil fuel underwriting and investments, AIG remains one of few major global insurers without a single policy to reduce support for fossil fuels. It’s also one of the few companies left that is both willing and capable to insure new, multi-billion-dollar coal projects. Coal is struggling as a result of insurers pulling out of fossil fuels, but AIG continues to prop it up.
One might wonder whether the company is dependent on dirty energy. But coal accounted for less than 1% of AIG’s 2019 premiums, so that can’t be it. And Societe Generale recently found that exiting coal adds billions to insurers’ valuations; it recommended a valuation input of -3% to +9% into insurers’ target price based on their ESG and coal underwriting policies. This finding is similar to that of a 2020 Moody’s report, which considered insurers’ “retreat from coal” as “credit positive, as it protects them against potential climate change liability risk, and reduces the risk of their investment assets becoming ‘stranded’.” So AIG would likely be worth significantly more if it were to phase out its relationship with coal. Maybe it’s unfair to expect a CEO paid tens of millions of dollars a year, with free access to a company jet and other perks, to know about this one weird trick that would not only improve his company’s valuation by as much as 12% but also help prevent the worst crisis in human history, even if people have been trying to tell him for years.
And AIG could use the boost: The company’s stock is worth less than half its inflation-adjusted 1981 value and is down nearly 20% from when outgoing CEO Duperreault took over in May 2017. Not to mention that the company—an insurance company, which should specialize in mitigating risk—needed a $182 billion bailout from the U.S. government in 2008 due to its wildly reckless conduct and has struggled to turn a profit ever since.
So AIG is senselessly fueling the climate crisis, and these actions likely harm the company more than help. A change of leadership could be just what it needs to start making better decisions. As a “numbers guy” who has written about the “climate-induced costs of the modern era,” perhaps Zaffino will put two and two together and cut ties with fossil fuels before it’s too late. Unfortunately, the initial signs could be better. We’ve asked Zaffino for a meeting to discuss AIG’s policies on fossil fuels, and he hasn’t responded. In a February 2020 interview, Zaffino said, “There are so many things that are going to be coming our way in the future that we’re not even contemplating that could mean enormous changes to the world.” Let’s hope he’s focused on climate change, and it isn’t one of those things he’s “not even contemplating.” We will bring it to his attention to make sure. One way or another, Zaffino will hear a lot more from us until AIG stops propping up fossil fuels.