Fossil fuel producers and their contractors in Australia have admitted moves by major global investors and insurers to reduce their exposure to risks from the climate crisis are making it harder for them to insure and finance major projects.
One contractor building a 120km rail line for the controversial Queensland Adani coalmine said a global search for insurance had failed with more than 40 underwriters refusing to back it.
The major impacts on the fossil fuel sector are revealed in submissions to a parliamentary inquiry pushed by pro-coal backbenchers and backed by Morrison government ministers.
Earlier this week a leading UK government climate official said Australia’s lack of a significant plan to tackle the climate crisis had left Australia alone among major economies.
The Australian Council of Superannuation Investors (Acsi) warned the government in a submission that “the price of climate risk is on the rise” and that an unplanned or “late transition to a low-emissions economy will cost the Australian economy more”.
Construction firm BMD, which is building a major section of the rail line for the Adani mine, said in more than 40 years of working in Australia it had never before been “exposed to such a large and immediate risk” after insurers had refused to underwrite any of its work associated with the coal project.
BMD wrote the company was aware the “worldwide insurance market is removing its support for coal-related projects and that coverage for projects associated with coal moving forward will see limited available coverage.”
BMD’s unnamed insurance broker had told the company in 2020 it had been unable to source public liability insurance, environmental protection insurance and policies covering its directors and officers. The company’s work for Adani – which has been rebranded Bravus – was explicitly excluded from polices.
“The fact is that contractors cannot afford to, nor will they, perform work uninsured,” the company wrote.
The Guardian asked BMD how it had overcome the issue and if it had gained insurance, but was told to direct questions to Bravus.
Bravus told the ABC it has the requisite insurance for its project, which has been the focus of sustained protest by climate change campaigners.
BMD suggested state or federal governments should “provide the necessary insurance from public funds” to make sure the industry was supported.
The economist and former Liberal leader John Hewson, who until last year was chairman of insurance broker GSA, told Guardian Australia: “There is no way governments should be picking up the tab.”
He said the problems being faced by coal companies in gaining finance and insurance were “not a market failure, but is the market working”.
“I think the banks and insurers are recognising the inevitability of the trend (away from fossil fuels) long before the companies that are engaged in that market.
“If they aren’t prepared to insure or finance it, then it’s a clear message that this business model is not sustainable.”
Oil and gas industry group, the Australian Petroleum Production and Exploration Association, said in a submission that capital was becoming “increasingly scarce”.
Andrew McConville, the chief executive of Appea, wrote that “information asymmetry by the broader finance sector, fuelled by the political agendas of shareholder activists” risked creating a drought of capital.
In a separate submission the major Australian gas producer Woodside said while it was spending more time responding to investors’ and insurers’ questions about environmental and social issues, this was “consistent with being a responsible operator”.
The mining industry group the Minerals Council of Australia denied in its submission there was any heightened risk for insurers in backing fossil fuel projects.
“By making these unilateral decisions on providing insurance cover and finance, these institutions have undermined the ability of Australian financial institutions to commercially operate in the Australian mining sector.
“There is no evidence that insurance for operations operating today is either a heightened insurance risk, or that denying coverage will in any way assist with achieving net zero in a way that serves customer nations, communities or companies.”
The Insurance Council of Australia said there was growing acknowledgement that climate change and climate-related risks were a financial risk, and that this was impacting on the financial stability and resilience of insurers.
Through risk-based pricing, insurers “provide critical economic signals regarding the changing risk environment”, the ICA said.
Coalminer Yancoal, which is majority-owned by Chinese firms, wrote: “A growing percentage of Australia’s major lenders, faced with sustained activism, are declining to be a party to new coal operations. Many are also looking at imminent strategies to exit their existing business involving the production of coal.”
Yancoal said international creditors were more willing to finance fossil fuel companies than Australia-based financiers.
Australian Council of Superannuation Investors (Acsi), which represents investors managing more than $1tn in assets, wrote the international transition to low carbon emissions “is already occurring and is not dependent on the decisions of investors and prudential regulators within Australia”.
Acsi wrote: “Unmitigated climate change would have catastrophic impacts across the globe, including impacts on human health, biodiversity, water availability, and disruption of ecosystems. Climate change therefore presents significant financial risk to the global economy.”