Last month’s cover story – “Carbon Crusade” – in a leading financial magazine is devoted to my efforts to get insurance companies to evaluate the financial risk climate change poses to their investments in coal, oil and gas.
While not the cover of Rolling Stone, I thought you might find it of interest.
Earlier this year, I took two first-in-the nation actions. I asked the 1,300 insurance companies I regulate to divest from thermal coal. And I required insurance companies to disclose their investments in coal, oil, and gas.
I took these actions because, as a financial regulator of insurance companies, a big part of my job is to make sure that insurance companies are invested in assets that retain value. With all the international, national, state, and local policies and laws being enacted to restrict the burning of carbon (and rightly so if we are going to save the planet from continued temperature rise), there is a growing and material financial risk that carbon assets (coal, gas, and oil) will become “stranded assets” on the books of insurance companies. Stranded assets are assets which decline in value, potentially to zero, in this case because laws are passed to restrict the burning of carbon. The “stranded assets” risk is most acute for thermal coal, as the article explains.
While being the first financial regulator in the nation to call for a financial sector to divest from thermal coal and the first to impose financial disclosure requirements for carbon investments has resulted in major pushback and threats, I will continue to insist that insurers address climate risk.
I am not alone. No less a leading financial regulator than the head of the Bank of England has identified climate risk as a material financial risk for banks and insurance companies. My leadership in this regard has been recognized internationally. I testified in London before the G-20 Financial Stability Board, which was considering at that time what it ought to ask banks to do with regard to climate risk and wanted to know what I was doing with insurance companies.
It’s an enormous responsibility to regulate the largest insurance market in the United States and sixth largest in the world. I will continue doing so in a way that protects consumers and fulfills my responsibilities as a financial regulator. Thank you for the privilege of serving as California’s Insurance Commissioner.