7 years ahead of schedule, AIA becomes the first major Asian insurer to end coal exposure

In March this year, AIA—Asia’s largest publicly listed life insurance group valued at $127 billion—said it would completely divest from its equity exposure to coal mining and coal-fired power businesses by the end of 2021, and fixed-income exposure to the same by 2028.

Yet the company announced in an official statement on Tuesday that it had sold off all of its fixed-income—and equity—coal holdings in October, seven years ahead of schedule. The insurance company will also make “no new investments in businesses directly involved in coal mining or generating electricity from coal,” it said in the same release.

The insurer’s announcement gives a “strong boost” to Hong Kong and Asian regulators trying to “encourage listed companies to move on climate issues,” says Alexandra Tracy, president at Hoi Ping Ventures, a research and consulting firm focused on low-carbon investment in Asian emerging markets. Net-zero investing is gaining momentum among Asia’s financial institutions as firms seize investment opportunities in the green transition, says Rebecca Mikula-Wright, CEO of the Asia Investor Group on Climate Change (AIGCC).

Tracy, however, added a caveat that divestment may not always be the best answer: “Selling a stock means that any potential to influence company behavior on climate or other issues is lost.”

The global insurance industry is the world’s second-largest institutional investor after pension funds, holding $31 trillion assets under management. AIGCC’s Net Zero Asset Managers initiative—an international group of asset managers committed to net-zero greenhouse gas emissions by 2050 or earlier—now has 220 signatories, including nine from Asia. The consortium together manages $57.4 trillion in assets and includes the world’s three biggest fund managers BlackRock, State Street, and Vanguard. In 2021 environmental, social, and governance (ESG) funds attracted “unprecedented inflows, including in Asian markets,” says Tracy. Nearly one-quarter of Japan’s market for instance, is allocated to sustainable assets, she says.

AIA says it will incorporate the United Nations–backed Science Based Targets initiative (SBTi)—best practices in emissions reductions and net-zero targets—into its $286 billion investment portfolio. The company expects to invest more in “green, social, and sustainability bonds and renewable power,” an AIA spokesperson told Fortune. AIA’s green bond investments jumped to $1.1 billion at the end of 2020 from $575 million at the end of 2018.

Insurance and reinsurance companies play a key role in facilitating the transition to a low-carbon economy given that “without insurance, most new fossil fuel projects cannot go ahead and existing ones must close,” wrote activist nongovernmental organization Insure Our Future (IOF) in its 2021 Scorecard on Insurance, Fossil Fuels, and Climate Change, which assesses companies’ policies on fossil fuels and climate leadership.

Asia’s insurance and reinsurance firms have traditionally lagged behind their European peers when it comes to climate commitments. Germany’s Allianz, France’s AXA, and Switzerland’s Swiss Re sit at the top of IOF’s scorecard; the best performing Asian insurer is Tokio Marine, sitting at No. 15 out of 35 companies.

But in recent years, the largest Japanese and South Korean insurers—like MS&AD, Sompo, and Samsung Fire & Marine Insurance—have strengthened their coal phaseout policies in accordance with Japan’s and South Korea’s commitments to achieve net zero by 2050. Still, the same insurers haven’t shared any details on how they are actually divesting from coal, says Peter Bosshard, director at environmental NGO the Sunrise Project.

With East Asian insurers beginning to withdraw their support for coal, the U.S. insurance sector is the “last big group of insurers without any coal restrictions,” according to IOF. AIG, Berkshire Hathaway, Travelers, and W.R. Berkley sit near the bottom of IOF’s rankings, as the firms haven’t put any restrictions on underwriting fossil fuels. Chinese insurers, such as Sinosure and the People’s Insurance Company of China, also ranked near the bottom for the same reasons; while other mainland Chinese firms like Ping An have made recent progress on phasing out coal.

American insurers have invested approximately $90 billion in coal projects as of 2020, according to the group, undermining “the Biden administration’s efforts to accelerate the phaseout of coal.”