European insurers’ withdrawal of investment and cover for coal projects is not being mirrored by counterparts elsewhere in the world, AM Best warns.

Many outside Europe have not implemented environmental, social and governance (ESG) practices and are stepping in to cover coal projects. AM Best also believes the drop in market capacity may be leading them to charge higher rates.

Consumer demand for businesses to adopt positions on societal issues is piling pressure on insurers to incorporate ESG practices into underwriting and investment processes.

AM Best warns insurers that ignore these demands court reputational risk – a key problem for the industry.

Regulatory pressure is also growing, with more ESG-related disclosure requirements.

Yet insurers that implement ESG initiatives are not necessarily more profitable, and there is no consensus on material financial benefits, the ratings agency says. Whether insurers adopt ESG practices depends on where they are based and pressure from stakeholders.