Reducing the Risk Itself(Archive)

Reducing the Risk Itself
Letters, we get letters. An institutional investor writes: of all the asthma-inducing toxic polluters on the stock exchange, why did we choose to sponsor a CERES shareholder resolution [1] at Allstate, the insurance company? Wouldn’t our efforts be better spent elsewhere?
The correspondent’s question is a reasonable one. And although Woody Allen once joked that spending an evening with an insurance salesman was one of the “worse things in life than death,” we wish to go on record stating that we do not hold the insurance industry singularly responsible for the occasional dull cocktail party, let alone the world’s ecological turmoil.
There are two overarching reasons why we’d like to see companies like Allstate embrace the 10-point CERES Principles and produce an environmental report as part of its commitment. One is that non-manufacturing firms do make a significant impact on the environment even if they are not emitting billows of smoke downwind. Allstate’s 41,000 employees (and 13,000 agents) generate an enormous demand for electricity, paper, transportation and fuel. We know from stalled CERES discussions with the company that Allstate can boast of a thorough recycling program, a van pool, and a few business initiatives that make secondary contributions to the environment. What we’d like to see – and where we believe that membership in CERES would make a difference – is an expanded sense of Allstate’s full potential to bring about beneficial environmental change in the world beyond its headquarters. For example, Allstate could explore how to use its purchasing power to buy green energy, and to demand that vendors supply it with green products. It could help to lead, rather than passively observe, the evolution of sustainability reporting and in the financial arena and the development of environmental and social metrics most appropriate to this most critical of sectors.
Which leads us to the second overarching reason we want to see Allstate become a CERES company: the very nature of its business. Allstate is the second largest property and casualty insurer in the U.S. Increasing variability in weather patterns throws a statistical monkey wrench into risk management models upon which insurers rely to set premiums. Although it is difficult to disentangle how much of the variability is due to climate change, prudence would dictate that insurers act in their own self-interest to mitigate the impact of economic activity on global climate change. Residential and commercial property lines are considered to be the most vulnerable to past and future climate changes, according to a recent study funded by the Department of Energy and the Environmental Protection Agency.[2]
Insurers need to increase their involvement in climate change mitigation strategies, such as investing in green technology companies. The U.S. insurance industry’s involvement in the climate change issue has waned since the mid-‘90s, according to the DoE study. Although insurers have been involved in a large number of activities that address weather-related losses, and to some extent, climate change, the report observes that “what does not emerge is a sense that these events have built upon one another towards some sort of consensus on the matter or towards a coordinated plan of action extending beyond preliminary discussion and fact-finding.” Instead, the traditional risk management model prevails, which arms “the individual against risk rather than reducing the risk itself.” The authors find it notable that “US insurers have yet to publicly discuss the potential business opportunities that climate change/mitigation may offer to them and others in the business community.” Interviews with executives led the authors to conclude that many insurers are “paralyzed by conflicting reportage on the topic and skeptical about the political and scientific assessments of climate change.”
This has to change. More than eleven percent of Allstate shares were voted in favor of our second filing of the CERES proposal in May, which is not too shabby a vote in the world of shareholder resolutions. We hope a third year won’t be necessary.
[1] CERES is the Coalition for Environmentally Responsible Economies, the leading U.S. coalition of environmental, investor, and advocacy groups working to promote corporate environmental responsibility.
[2] “US Insurance Industry Perspectives on Global Climate Change,” by Evan Mills, Eugene Lecomte and Andrew Peara, February 2001. Available online at http://eande.lbl.gov/insurance/cifram.html.