The Texas Legislature is considering several bills that would prevent insurance companies from taking environmental, social and governance issues into account in their investment strategies.
Insurance companies and environmental advocacy organizations said the measures threaten the investments that insurance companies and others rely on and ignore risks to the underlying companies.
Republican Texas state Senator Bryan Hughes, the sponsor of two of the major pieces of legislation, did not return a call asking for comment.
One bill, if signed into law, would prohibit insurance companies based in Texas from implementing any shareholder proposals related to environmental, social or governance factors. The bills would limit the ability of insurance shareholders to exercise their rights, express concerns about insurers’ policies on climate and human rights or advocate for better risk management practices, according the Rainforest Action Network.
Another bill would prohibit local municipalities from doing business with any financial institution considered to be boycotting fossil fuels by using ESG methodologies in its business practices. And yet another would bar insurance companies from integrating environmental, social and governance criteria in their decisions about what to insure, even when those criteria are at the core of their risk assessment processes, the Rainforest Action Network said.
Several insurance organizationns testified against the bills.At the same time, Chubb was the first U.S. insurer to limit insuring oil and gas extraction rights. “It is notable that a U.S. insurer is taking steps to combat climate change even as they face attacks around ESG,” the Rainforest Action Network said.
Green Century Funds President Leslie Samuelrich said in a statement, “It’s completely inappropriate for legislators to direct how insurance companies identify and calculate risk. Removing environmental risk factors from consideration means that insurers could no longer consider how climate change affects their underwriting decisions and could adversely impact their bottom lines. It violates free market principles and good old-fashioned common sense to restrict companies’ abilities to address their own material risks.”
Samuelrich added, “We’re one of the shareholders who are asking insurers to phase out underwriting of new fossil fuel supply because we see climate change as a long-term financial risk—to us and insurers alike. Our focus is on curbing expansion of fossil fuel supply, whose emissions the world can no longer absorb.”
At the same time, Michel Leonard, chief economist and data scientist at the Insurance Information Institute, said, “ESG is in the DNA of any insurance company. It would be very difficult for the insurance industry to insure [companies] in an economically viable and sustainable way without paying attention to environmental patterns.”
The Rainforest Action Network noted that despite the Texas legislature’s concerns about oil and gas insurance exclusions, Texas is a leader in renewable energy production in the U.S. with nearly 19% of its electricity being produced from renewable sources.
“The Texas Legislature is attacking the core mission of insurance companies to assess risk,” said Elena Sulakshana, a senior energy finance campaigner for the Rainforest Action Network, in an interview. ”This is one of many pieces of legislation that Texas legislators have proposed to attack investor freedom.”
Green Century Funds and the Rainforest Action Network work for similar goals, she said. Green Century Funds are fossil fuel-free, environmentally responsible mutual funds, and it is the only mutual fund company in the U.S. wholly owned by environmental and public health nonprofit organizations.
“Texas has become ground zero for attacks on investor freedom,” Sulakshana said.