Green finance is lambasted by red US states

2023-06-03 12:14:48

The financial sector is on its guard. Accused by environmentalists of indulging in greenwashing, he is also under attack from the Republican community in the United States, which accuses him of violating laws on healthy competition. So much so that companies are becoming hesitant to publicly expose their commitments to the fight against climate change, yielding to the phenomenon of ” greenhushing or “ecosilence”.

For several months, “red” American states have been on a crusade to limit the influence of environmental, social and governance (ESG) criteria within finance, because they believe they are causing a boycott of companies fueling fossil fuels.

In a letter dated May 15, the attorneys general of 23 Republican American states accused the insurance companies belonging to the Net-Zero Insurance Alliance (NZIA) of violating American competition laws.

“We, the undersigned Attorneys General, are concerned about the legality of your commitments to collaborate with other insurers and asset owners to advance an activist climate agenda,” they wrote.

Result: at the end of May, six major insurance companies – Lloyd’s, QBE Insurance, Allianz, AXA, SCOR and SOMPO Holdings – deserted the coalition, following in the footsteps of Munich Re, Zurich and Hannover Re who had already left it a few weeks ago. earlier.

What raise questions about the survival of the coalition – a sub-branch of the Net-Zero Financial Alliance launched by Mark Carney, the former number one of the Bank of Canada, during the Glasgow COP.

The alliance under the magnifying glass of the competition

“It’s entirely political,” said Pierre Larouche, professor of competition law at the University of Montreal. “But the legal argument is not completely outlandish. It touches on a fairly complex issue, which is the way in which competition law approaches cooperation between insurance companies,” he adds.

Under competition law – whether American or Canadian – companies are not allowed to collude to drive up prices. “But there are also good reasons for insurance companies to cooperate, to share information on risks, in particular,” explains Mr. Larouche.

In this case, the Republican attorneys general accuse the insurance companies, among other things, of having political motivations.

“However, from the point of view of insurance companies, they want to take into account the risks associated with climate change,” explains Mr. Larouche. “They ask their customers to change their practices, otherwise they will charge them a premium, which is standard practice. Insurance companies always meddle in the business of policyholders because it’s risk management. »

“Greenhushing” or “ecosilence”

And if insurance companies want to limit the financial risks associated with climate change… they also want to protect themselves from legal risks, notes Julien Beaulieu, lecturer in competition law and corporate social responsibility at the University of Sherbrooke.

“There are a lot of companies that aspire to be green, that want to go net-zero, only they get slapped on the wrist because they might be violating competition laws, and on the other hand, they are also slapped on the wrist by environmental groups, who accuse them of greenwashing,” explains Mr. Beaulieu.

We thus see the appearance of the phenomenon of greenhushing or “eco-silence”. “It’s the tendency of companies to keep their climate commitments silent or to stop taking them, because there are too many risks”, says Mr. Beaulieu.

“If we take a step back, the reason why voluntary net-zero initiatives have emerged is a reaction of the private sector to a lack of action by the public sector”, underlines the lecturer. “The financial sector is in the best position to cut funding to polluting industries. Except that today, companies are asking themselves: is it really worth taking all these risks? Perhaps it would be better to wait for mandatory regulatory mechanisms… But here we come back to the political problem: will these mechanisms happen? raises Mr. Beaulieu.

As for the insurance companies that have deserted the alliance, the latter maintain that they will continue to pursue their environmental objectives… but they will no longer brag about it within an international alliance.