Political will still the key to fighting climate change

AT THE end of March, the Net-Zero Insurance Alliance (NZIA) had 30 members, all major insurers and reinsurers who had committed to reducing the emissions of their underwriting portfolios to net zero by 2050.

However, over the past two months, the United Nations-backed initiative has seen an exodus of members – including some of its founders – and its membership roll is down to just 20 members.

The reason for the departures has been widely reported to be related to pressure by members of the US Republican Party who are against the pursuit of environmental, social and governance (ESG) principles in the financial sector. In May, 23 Republican attorneys-general raised concerns about the NZIA on grounds including possible antitrust violations.

A number of the companies that left NZIA have said that they will continue with their decarbonisation efforts – just on their own.

This victory for the anti-ESG camp may be confined to the US for now, but its impact and risks are far-reaching. Asia would do well to heed its lessons.

The first point to learn is that political support is critical to accomplishing climate goals. Preserving that political support, which for the most part seems to exist in Asia, must be a priority for companies and policymakers. Doing so can be hugely challenging.

In their fervour to combat climate change or to gain green street cred, capital owners and policymakers sometimes forget to account for the human element. But the people who stand to lose cheap coal-fired power and must pay more for more sustainable fuels are also voters.

This will become an increasingly hot-button issue as Asia confronts the cost of decarbonisation. For instance, professional services firm Arup estimates that hydrogen at this time would double the cost of electricity. The decision by a number of countries in Asia to increase thermal coal production in the initial aftermath of the war between Russia and Ukraine further illustrates the importance of political support. Without community backing, change cannot be sustained.

The other lesson is that companies must tread carefully in how they confront climate change. Money is highly influential, but with great power comes great scrutiny and wariness. Businesses and financiers should expect more questions about how they use their influence to achieve climate goals.

These questions reflect unease about the ability of capital owners to shape societies. In many South-east Asian countries, the climate-related policies imposed by major global investors on companies are more stringent than local requirements. Who gets to determine the value of one tonne of greenhouse gas emissions? An investor via a carbon credits marketplace, or a government via a carbon tax?

Climate change is the grand crisis of our times. The Intergovernmental Panel on Climate Change has determined that global temperatures have reached about 1.1 deg C above pre-industrial levels, and that it is likely that global warming will exceed 1.5 deg C by the end of the current century. Overshooting the 1.5 deg C target greatly increases the risk of extreme weather, ecosystem disruptions and human suffering.

Without stronger action, the world will not be able to achieve its climate goals and avert the more dire scenarios of a warmer planet. A loss of political will to take those actions would be devastating.