Insurers are not exempt from the mounting pressure on financial institutions to divest from coal and coal-fired power assets to reach Paris climate commitments.

AIA, one of the world’s largest financial firms and one of Asia’s largest insurers, is one of 11 insurers to support efforts toward carbon-friendly investing via the UN’s Principles for Responsible Investment (PRI), the Task Force on Climate-related Financial Disclosures (TCFD), and the Climate Action 100+ (CA100). These commitments are under scrutiny as AIA is the only supporter yet to announce a coal investment policy (either a divestment schedule or a policy to restrict future investments). AIA’s coal investment exposure is estimated to be as much as US$6 billion. The Institute for Energy Economics and Financial Analysis (IEEFA) admits that it uses a crude method of estimating AIA’s coal exposure as AIA is not transparent in providing the data on its actual holding of coal assets.

This large exposure to coal poses additional investment risks as the assets may become stranded and need to be written down. This would impact investors as it would take a significant bite out of earnings, potentially impact AIA’s brand value, share price, and raises doubts about AIA’s investment management.

IEEFA examines AIA’s ESG reporting as mandated by the Hong Kong Exchange. Their findings include that the insurer tends to focus on efforts to improve policyholder health (which has the dual benefit of lowering insurance claims) rather than their investment exposure. AIA does not come out favourably when the weighted average carbon intensity of its equity’s portfolio is benchmarked against the MSCI broad market indices.

IEEFA reviews AIA’s investment portfolios. Findings suggest coal exposure is most concentrated in AIA’s investment portfolio, coinciding with the sectors AIA has the largest discretionary control over: corporate credit, sovereign debt and equities. It is noted that AIA’s equities exposure exists despite claims to liquidity within the portfolio, suggesting they have the ability to change this in future.

Alongside this, it is estimated that 15-20% of AIA’s Infrastructure Portfolio is composed of traditional, coal-fired power assets. This follows pushes by the insurer to obtain greater exposure to infrastructure in 2016, as infrastructure is a suitable vehicle to match long-dated policyholder liabilities. This coincides with a concentration of coal-fired infrastructure assets in Asia.

IEEFA concludes with a call to be proven wrong by AIA and acknowledge CIO Mark Konyn’s understanding of the risks of stranded assets. He has voiced support for using the COVID-19 pandemic to push for sustainability-friendly investments. AIA has also taken steps in recent years, such as signing the three global climate accords and appointing HSBC Global Asset Management (who has a coal-exclusion policy) as an adviser, to identify and access infrastructure debt opportunities.

1. IEEFA estimates that 15-20% of AIA’s US$30 billion infrastructure fund is probably invested in coal and coal-fired power. Using a bottom-up analysis by asset class, they estimate that AIA could be holding between US$4.1-5.8 billion of coal and coal-fired power exposure in its equity, corporate credit, and quasi-government/SOE credit portfolios combined. US$4-6 billion would be a range of 2-3% of AIA’s overall investment portfolio.
2. It is mandated by the Hong Kong stock exchange that companies publish an ESG report. Leeway in definitions of stakeholders and business materiality has allowed AIA to produce ESG disclosure in this report that is heavy on its operational footprint (75% of the report) and only minimally addresses the insurer’s investment portfolio. AIA instead places emphasis on efforts to improve the health of shareholders, which is not purely altruistic as the healthier policyholders pay premiums for longer and it reduces AIA's insurance pay-outs.
3. AIA completed an audit on the weighted average of issuer's carbon intensity in its equity portfolio (estimated at 10% or US$26.2 billion of their total investment portfolio) in 2019. They published the findings in their 2019 ESG report at 301.8 tons CO2e per million US dollar. IEEFA benchmarked this against AIA's actual geographical allocation and found that it failed to beat the MSCI All Country or MSCI North American scores, illustrating AIA is more overweight in carbon-intensive sectors than MSCI’s broad market indices as a whole. At that level, AIA doesn’t meet the emerging markets average, despite arguably not being an emerging market, since more than a third of its assets are in Hong Kong.
4. Given the prevalence of coal power in the 18 equity markets that AIA operates, IEEFA estimates that AIA's total regional equity exposure to coal and coal-fired power is likely to be at least US$200m. As an example, AIA holds at least US$100m of electric utility company Tenaga Nasional Berhad in Malaysia. More than 50% of Tenaga's power is generated from coal.
5. AIA has not disclosed a breakdown of its fixed income portfolio since its IPO in 2010. Given indications from its equity portfolio that there has been no screening against coal, it is reasonable to assume that AIA invested in line with financing requirements in its local markets and coal divestment was not a consideration.
6. Surveys have found Asian infrastructure projects favour utilities:
   • In 2011, McKinsey forecasts that nearly half of the forecast US$1 trillion in Asian infrastructure investment between 2010-20 would go to power opportunities.
   • In 2015, Preqin analyzed 2010-15 Asian infrastructure investment and found utilities made up anywhere from 16-40% of Asian infrastructure deals.
   • In 2016, the Asian Development Bank found 22% of all Asian infrastructure deals were in utilities.
   • In 2017, McKinsey forecasts that 35% of Asian infrastructure investment was expected in power.
   • In 2020, the Asian Infrastructure Investment Bank looked at the value of closed private infrastructure transactions in Asia between 2015-2019 and found conventional coal power makes up anywhere from 20-25% of total private infrastructure investment.
7. AIA reports that it can liquidate 95% of its equities within one day. This suggests that their failure to address the carbon intensity of their portfolio is not excused by liquidity issues, and that equities is likely to be the easiest place to begin.
8. Insurers that have signed on to CA100+, PRI and TDFC and their domicile: AIA Group (Hong Kong), Allianz (Germany), ASR (Netherlands), AXA Group (France), CNP Assurances (France), Dai-Ichi Life (Japan), Folksam (Sweden), Gjensidige (Norway), Länsförsäkringar (Sweden), Skandia Mutual Life (Sweden), Swiss Re (Switzerland).