Why a major insurance firm is under fire for backing an East African oil pipeline

The world’s largest insurance broker is under fire for supporting a controversial oil pipeline that cuts through East Africa’s national parks.

These complaints opened a new front in a larger war within the global insurance industry over the future of support for fossil fuels.

On Tuesday morning, a coalition of Ugandan and Tanzanian civil society groups and a U.S.-based environmental nonprofit filed a formal complaint to the State Department against insurance giant Marsh McLennan.

The groups charged that by contracting with the 867-mile East African Crude Oil Pipeline Project (EACOP) from Africa’s Great Lakes to the ocean, Marsh McLennan is abetting the forced eviction of 118,000 people from their homes while putting at risk both fragile wildlands and freshwater resources that more than 40 million people depend on.

Marsh McLennan is not building the pipeline, which is  a joint project between China’s CNOOC and France’s TotalEnergies. The insurance giant is not even underwriting it. 

Instead, the advocacy groups charge that the brokerage giant acted unethically by agreeing to help EACOP find insurance — without which the project and the consequent buildout of new oil development in East Africa cannot proceed.

Marsh spokesperson Sally Roberts wrote The Hill that despite its support for the energy transition, geopolitical concerns made “a secure energy supply crucial for the global economy and society as a whole.”

“We believe all communities are best served by working with operators of clean energy assets to accelerate progress to a lower carbon world and with traditional energy clients to enable them to manage the risks associated with current projects and make the transition as quickly and responsibly as possible,” Roberts added.

Crucial financing

The company holds a pivotal role in whether the traditional energy represented by EACOP gets developed, Coleen Scott of Inclusive Development International, one of the signatories of the State Department complaint, told The Hill. 

Scott said that without a company like Marsh McLennan finding the project an insurance policy, EACOP won’t be able to secure final financing. Without that financing, the pipeline can’t be built and the new oil developments in East Africa will be too expensive to ship. 

If the pipeline goes through, it could open the door to broader oil development in East Africa — including in the gorilla-rich Virunga National Park, according to The Africa Report.

What’s at stake

The pipeline route runs from drilling sites in Uganda’s Murchison Falls National Park and its path across several forest reserves populated by lions and chimpanzees. The path “looks almost as if it were drawn to endanger as many animals as possible,” the New Yorker’s Bill McKibben wrote.

That is part of why the EACOP project is highly controversial within the insurance industry. Twenty-one insurance and reinsurance companies have publicly refused to back the project on climate, environmental, social and governance (ESG) grounds.

For example, Munich Re — the world’s largest reinsurance company — announced in April that the project did not meet its decarbonization targets. Swiss Re, the second largest, cited concerns about damage to protected wetlands.

And Allianz, the world’s third-largest insurance company, announced it too would not sell policies to EACOP, as the project “neither meets our climate ambition nor falls within our ESG risk profile.”

An October report by Les Amis de La Terre, the French chapter of the environmental nonprofit Friends of the Earth, interviewed Tanzanian villagers who said that the companies and government were forcing them from their land to make way for the pipeline.

One villager complained to the advocacy group that they hadn’t wanted to sign the consent form offered by the pipeline contractor because the amount was too low. “But I was intimidated: If I’m not going to sign, my land will be taken, and I will not be compensated,” the villager said, in a claim, many others in the report repeated.

Then there are the immediate environmental implications. The pipeline traverses 867 miles of seismically active country, from earthquake-prone Lake Victoria to new export terminals on the ecologically sensitive coast, which activists note faces continuing risk from tsunamis. (The deadly 2004 Indian Ocean tsunami wrecked a pipeline near Dar es Salaam, Tanzania.) 

There are also broader concerns about its impact on the climate. In October, the nonprofit Climate Accountability Institute calculated that the oil exported from the pipeline would cause an additional 379 million tons of carbon dioxide to be dumped into the atmosphere over the next 25 years.

That’s equivalent to adding 3 million cars to the roads for the lifetime of the project, based on data from the Environmental Protection Agency.

Growing stigma

The African pipeline is part of a broader re-evaluation of the role of new fossil fuel development in the future of the insurance industry — without whose underwriting services no development, whether wind farm or oil pipeline, can proceed.

Experts on climate financial risk often say that the insurance industry is exposed to climate risk from “both sides of the balance sheet,” because they are paying to reimburse the rising damages caused by extreme weather — even as most continue to underwrite the fossil fuel projects driving that disruption.

Many of insurance’s biggest behemoths have concluded that this calculus no longer makes sense. 

“The world is at a turning point,” Allianz wrote in a statement in April explaining why it would cease insuring or investing in new fossil fuel infrastructure of any kind beginning as of January 1, 2023.

“We are experts in risk management, and our products help secure our clients’ futures,” Allianz wrote. “Business and society face existential threats from climate change in a 3°C world. Society and the business community must manage this risk by mitigating climate change.”

“We’re criticizing them because it doesn’t go far enough,” said Lindsay Keenan, EU-based campaigner with Insure Our Future, an advocacy group pushing to get the insurance industry to stop supporting fossil fuels.

But overall, Keenan praised the policy, which broadly bars the group from underwriting new oil and gas projects. “I’m talking about the upstream, downstream, midstream,” he said.

Other industry giants have followed suit. This April, a similar ban from Munich Re will also go into effect. As the world’s largest reinsurance company, it provides backstop insurance to insurance companies — putting it in a particularly precarious position in a world of increasing climate disruption.

While Allianz and Munich Re are based in Germany, U.S.-based companies are also under increasing pressure from the “growing advocacy” around ESG concerns, said Keith Buckley, a managing director at financial research firm Fitch Ratings.

He noted that such complaints could lead to direct impacts like fines or more indirect damage to a company’s reputation.

For many insurance companies, a succession of human rights and environmental concerns have made EACOP too risky to underwrite. 

Keenan said the complaint against Marsh McLennan expands the focus to companies who sell insurance to fossil fuels — not just the ones providing it.

Given all those concerns, “any intelligent insurance company looks at that and says, ‘Okay, I’ve got the political risk insurance. I’ve got the director’s liability insurance. I’ve got the project insurance. I’ve got iconic wildlife in danger. I’ve got the pipeline itself and the accidents,’” said Insure Our Future’s Keenan.

Looking at those risks, insurers will increasingly say, “No, thanks,’” Keenan said.