Anti-ESG comes for the insurance industry

Mar 07, 2023 View in browser   By Jordan Wolman and Debra Kahn THE BIG IDEA Insurance companies are worried the anti-ESG movement could make it riskier to do business. | Noah Berger/AP Photo RISKY BUSINESS — Insurers are already on the front lines of climate change. Now they're getting their turn on the front lines of the anti-ESG movement. Lawmakers in red states like Texas, North Dakota and South Dakota are trying to bar insurers from weighing environmental, social and governance factors in writing policies. On the other side, activist shareholders and blue states are trying to limit insurers' investments and underwriting in oil and gas projects. A bill introduced last month in Connecticut would establish a surcharge on insurers that underwrite fossil fuels. For an industry that's based on evaluating and pricing risk, it's all a little rich. “ESG is in the DNA of any insurance company," said Michel Leonard, chief economist and data scientist at the Insurance Information Institute. “It would be very difficult for the insurance industry to insure in an economically viable and sustainable way without paying attention to environmental patterns." Republicans are using the same argument as they have in their attacks on other firms in the financial services industry — that ESG risks aren't material to companies' bottom lines and are instead a political calculation designed to appeal to the left. “We don't want to destabilize the entirety of the insurance industry by injecting a bunch of non-actuarially sound principles,” said Texas Rep. Tom Oliverson, vice-chair of the state House's Republican caucus, who has introduced a bill to bar insurers from considering ESG scores or diversity, equity and inclusion factors when setting rates. The insurance industry is resisting, arguing that such legislation undermines their business practices and could prompt the sort of instability that Oliverson is warning about. Insurers note that considering climate risk helps them deal with things like stranded assets and high costs for disaster cleanups. And they regularly consult things like credit ratings and ESG scores that account for such risks — 85 percent of global insurers believe ESG will impact all functions of their business, according to a recent survey from PwC. Doug Abraham, a lobbyist for the APCIA, testified last month against a South Dakota bill that would bar financial companies and insurers from denying services to someone using anything other than “impartial risk-based financial standards,” arguing that it would boost insurance rates across the state and cause insurers to go bankrupt. The APCIA also opposes the Connecticut bill, writing in public comments that “states shouldn’t be using tax policy to try to prevent insurance coverage for disfavored industries.” The group warned that the legislation could also hurt people's ability to recover damages from the fossil fuel companies that would be affected. "Do we find it chilling when we see these laws? Well, we find it confusing," Leonard said. Industry confusion "could turn very rapidly to severe significant concerns," he said, if the bills passed and were interpreted to prevent looking at weather patterns. "Then we would be wondering whether we can even keep insuring in some of those markets."   DOWNLOAD THE POLITICO MOBILE APP: Stay up to speed with the newly updated POLITICO mobile app, featuring timely political news, insights and analysis from the best journalists in the business. The sleek and navigable design offers a convenient way to access POLITICO's scoops and groundbreaking reporting. Don’t miss out on the app you can rely on for the news you need, reimagined. DOWNLOAD FOR iOS– DOWNLOAD FOR ANDROID.     WASHINGTON WATCH SENATORS FOR SCOPE 3 — Democrats are speaking up to try to keep the SEC's climate rule as strong as possible, Declan Harty reports. More than 50 lawmakers wrote to SEC Chair Gary Gensler on Sunday urging him to keep the proposed rule intact. (Multiple outlets have reported that Gensler is considering scaling it back due to fears of litigation; POLITICO reported that Scope 3 emissions reporting is on the chopping block, while the Wall Street Journal singled out a financial reporting component.) They called the idea of preemptively curtailing the rule's Scope 3 and financial reporting components to head off legal risks "deeply misguided." "The proposed rules are necessary and overdue," they wrote, adding that if the SEC waters down the plans the agency "would be failing its duty to protect investors." Industry response: The banking industry said the rule should get rid of Scope 3 requirements, citing "data quality challenges." “The proposed Scope 3 emissions disclosure requirements are overly broad and would not result in consistent, comparable or reliable disclosures," the Bank Policy Institute said in a statement. "These indirect emission disclosures would muddy the waters rather than provide clarity for investors.” BACK TO NOT FREE — The District of Columbia has run into a hiccup in its push to make Metrobuses fare free — there's not enough money. The Washington Metropolitan Area Transit Authority was set to start free buses this summer, after the D.C. Council approved the proposal unanimously (but without the support, notably, of Mayor Muriel Bowser). Then CFO Glen Lee issued a reduced revenue forecast last week on the back of higher interest rates and a softening property market. Councilmember Charles Allen, who's behind the initiative, argues that Lee overstepped his authority by decertifying funding for it. But he's hopeful the program can get funded through the regular budget process and start by October. The fight could be seen as an example of how sustainability-focused projects can be the first to go when money gets tight. Or maybe it’s just a case of politics as usual. Bowser, who appointed Lee to his position, has never supported the program. "I think there's a lot of people who will come to that conclusion," Allen told Jordan. BUILDING BLOCKS WINDUP — New Jersey is poised to be a hub for offshore wind, but it's still trying to make its first deal pencil out for ratepayers, Ry Rivard reports. Danish developer Orsted is citing inflation, interest rates and supply chain issues as it tries to redo part of the 2019 deal it struck with New Jersey's Board of Public Utilities to put 100 turbines 15 miles off the South Jersey Coast. Regulators say Orsted is looking to keep federal tax incentives from the Inflation Reduction Act, tax credits that would cover up to 40 percent of construction costs, rather than sending them back to ratepayers as previously agreed under a less-generous incentive structure. The project is supposed to be finished in 2025, but has yet to begin construction. Orsted also has another New Jersey project in the works, and state regulators just started accepting more proposals.   LISTEN TO POLITICO'S ENERGY PODCAST: Check out our daily five-minute brief on the latest energy and environmental politics and policy news. Don't miss out on the must-know stories, candid insights, and analysis from POLITICO's energy team. Listen today.     YOU TELL US GAME ON — Welcome to the Long Game, where we tell you about the latest on efforts to shape our future. We deliver data-driven storytelling, compelling interviews with industry and political leaders, and news Tuesday through Friday to keep you in the loop on sustainability. Team Sustainability is editor Greg Mott, deputy editor Debra Kahn and reporters Jordan Wolman and Allison Prang. Reach us all at gmott@politico.com, dkahn@politico.com, jwolman@politico.com and aprang@politico.com. Want more? Don’t we all. Sign up for the Long Game. Four days a week and still free! WHAT WE'RE CLICKING — Multinationals are warning the Inflation Reduction Act's generous subsidies could interfere with global minimum corporate tax negotiations, the FT reports. — Is California's water rights system racist? Some argue yes, the LA Times reports. — BP's retrenchment on renewables involves keeping much of its wind and solar generation for its own use instead of selling it, Reuters reports.   Follow us on Twitter Debra Kahn @debra_kahn Greg Mott @gwmott Jordan Wolman @jordanwolman Allison Prang @AllisonPrang   Follow us

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