Belo Monte Insurer Dropped from Sustainability Index

Zachary Hurwitz

The humongous risks and costs in constructing the Belo Monte Dam in the middle of the Amazon are beginning to be felt, not surprisingly, in the stock market.  Munich Re, one of the world's largest insurance companies and one of a dozen insurers and reinsurers that signed on to cover the risks of building Belo Monte, was dropped from the prestigious Global Challenges Index, which lists companies that "have made substantial, forward-looking contributions to surmounting global challenges," such as climate change, drinking water, deforestation, biodiversity, poverty, and responsible governance, among others. 

Munich Re is responsible for covering 25% of Belo Monte loan guarantees, along with other mega-insurance companies such as MAPFRE, IRB-Brazil Re, JLT Re, Klin, Fator, ACE, and others.  The latest estimates show that the project total may reach as high as $18 billion USD (or 34 billion reais as of today's exchange).  In other words, this is an astronomical insurance policy for Brazil's most costly and most risky infrastructure project ever.  

In case you missed it (which is very likely), here is the headline and news snippet from last week:

Munich Re removed from Global Challenges Index due to violation of environmental standards

The construction of the Belo Monte dam in the Amazon region of Brazil has come under heavy criticism because of the impact the dam may have on the environment and local residents. Experts anticipate that it will have adverse effects on the Amazon rainforest, particularly on species diversity, and hence also on the livelihoods of the indigenous inhabitants. Due to its involvement in this project, Munich Re has been excluded from the Global Challenges Index (GCX). By agreeing to provide cover for the construction phase of the project, the reinsurer violated the GCX’s strict environmental regulations.

Investors in general have started to realize that large dams in the Amazon are so destructive, so high-risk, that even lavish public subsidies and huge insurance policies can't cover up what is clearly a bad investment.  In fact, investments in massive dams such as Belo Monte may actually be drawing investment away from other sectors which could really benefit the public, reported this Bloomberg Markets Magazine story in April.  

Investing in mega-dams in the Amazon is not only weakening Brazil's standing as a player in international environmental sustainability and threatening the government's compliance with international covenants such as ILO169

It's also a bad place to put your money.