By Garrett Delk, Pickering Energy Partners
Two major insurance companies, Chubb and Munich Re, have announced new policies that reflect a growing trend in the industry. Chubb, the world’s largest property and casualty insurer, will only provide insurance coverage for oil and gas extraction projects to clients that have plans to reduce methane emissions. To continue receiving insurance coverage, clients must have in place programs to detect leaks, remove non-emergency venting and adopt measures that have been shown to reduce emissions from flaring.
Munich Re, the world’s largest reinsurer, will no longer provide insurance coverage or investment for new oil and gas projects. The new guidelines are part of Munich Re’s Ambition 2025 strategy, which aims to reach net zero emissions by 2050. Munich Re has committed to no longer invest in nor insure contracts or projects for new oil and gas fields, new midstream oil infrastructure or new oil-fired power plants. The company has also committed to no longer make new direct investments in pure-play oil and gas companies and will require credible 2050 net zero commitments from listed oil and gas companies with high levels of emissions by January 2025.
This rapid evolution signals an important change that U.S. energy companies should pay attention to. Increasingly we’re seeing both public and private company access to financing, insurance and investor capital being tied to the ability to produce quantitative sustainability metrics.
For the foreseeable future, oil and gas will remain integral to global energy needs, while the limitations of renewables prevent them from being the sole solution. Companies that demonstrate positive quantitative trend in sustainability efforts (primarily methane reduction) are more likely to attract high-quality capital. Legacy energy firms that recognize and embrace the pragmatic significance of sustainability considerations, particularly in terms of quantitative measurement and disclosure, will be well positioned to win in the long run.
Energy Workforce partner Pickering Energy Partners provides insights on ESG due diligence, disclosures and reporting. Garrett Delk is Associate, ESG Strategy & Integration.