Texas is ground zero for attacks on investor freedom to assess material risk. In 2023, 21 bills have been filed to prevent financial institutions and the state pension fund from considering environmental and climate risks, including two proposals targeting the insurance industry specifically.
It is critical that insurers are allowed to fulfill their role as risk assessors, and it is in shareholders’ interests for insurers to take climate risk into account and mitigate it. The legislation proposed in Texas, SB 1060 and SB 2149, challenges the fundamental business model of insurers as risk arbitrators and poses a serious threat to the industry and the policyholders, who will suffer if it is enacted. As climate disasters become more frequent, premiums are on the rise, and insurers are pulling out of markets hit hardest by climate disasters, the industry must step up to substantively address the challenges of the climate crisis.
This session, Senator Bryan Hughes, an outspoken advocate for the fossil fuel industry, filed two pieces of legislation in this vein. The first restricts the ability of shareholders to bring forward proposals around fossil fuel, climate, and social issues, and the second places further limitations on the kinds of investments Texas state pension fund managers can make. A third proposed bill concerns insurers’ ability to use environmental and social factors in underwriting decisions.
Here’s the low-down on the proposed legislation:
- SB 1060: Introduced by Senator Hughes, this bill prohibits insurance companies based in Texas from implementing any shareholder proposals related to environmental, social, or governance (ESG) considerations, such as climate pollution reduction goals or fossil fuel exposure. This bill would limit the ability of insurance shareholders to exercise their rights, express concerns about insurers’ policies on climate and human rights, and advocate for better risk management practices.
- SB 1466: Also introduced by Senator Hughes, this bill is an expansion of SB 13 passed in 2021, which prohibits local municipalities from doing business with any financial institutions deemed to be “boycotting” fossil fuels. This new legislation goes a step further by prohibiting the state from doing business with any financial institution or asset manager that utilizes ESG methodologies in its business practices.
- SB 2149: This bill was introduced by Senator Kevin Sparks, former president of Discovery Operating Inc, an oil and gas company. The legislation bars insurance companies from integrating ESG criteria in their decision-making about what to insure, even when those criteria are at the core of their risk assessment processes.
Texas doubles down on climate denial
The fossil fuel industry has a stronghold in Texas, and the cavalcade of legislation in 2023 targeting climate consideration and solutions is evident. Legislators, like Senator Hughes, are cozying up to the fossil fuel industry while limiting investor freedom and putting Texans’ hard-earned retirement funds at risk. The far right is happy to play politics with our hard-earned retirement funds to appease the fossil fuel lobby. Senator Hughes and Senator Sparks both have a long history of working with and advocating for the fossil fuel industry at the expense of Texans.
In 2021 Texas passed SB 13, which prohibits most state agencies and local municipalities from contracting with firms who “boycott” energy companies. In August of 2022, Texas Republican Comptroller Glenn Hegar released a list of 10 companies and 348 investment funds that could no longer do business with the state. This legislation targeted banks and asset managers like BlackRock. The Teachers Retirement System of Texas is the sixth largest teachers pension fund in the country, comprised of almost 2 million educators and retirees, and is worth about $173 billion. These boycotts threaten the financial stability of these pension funds and threaten hard-working Texans’ retirement.
Texas is ground zero for attacks on sustainable investing
This wave of anti-ESG legislation started in Texas with bills like SB 13 that passed in 2021. Other states followed suit and passed “boycott” bills to enshrine the fossil fuel industry in their state economy and limit investor freedom to access risk. West Virginia, Louisiana, Utah, Kentucky, and Oklahoma all enacted legislation inspired by Texas’ legislation. Texas lawmakers experiment and push the boundaries, and other like-minded states pick up the mantle and replicate what works.
Shareholders advocates speak up
Shareholder advocates are speaking out against this dangerous suite of legislation, specifically the bill that seeks to limit the ability of insurers in Texas to consider environmental risks in the underwriting process. Green Century Funds (GCF) is leading shareholder proposals at The Hartford and Travelers that call on the insurance giants to phase out their underwriting of fossil fuel expansion projects. After Hughes’ insurance legislation was filed, GCF published a press release voicing their opposition to Texas undermining insurers’ ability to assess risk, a core mandate of their business, citing the major financial risks that climate change poses to the insurance industry.
Green Century Funds President Leslie Samuelrich issued the following 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.”
GCF also points out that insurers often assess environmental risks, like climate catastrophes, in their underwriting models. This legislation attacks the core mission and duty of insurers as assessors of risk. Michel Leonard, chief economist and data scientist at the Insurance Information Institute, told Politico recently that “ESG is in the DNA of any insurance company.” Texas is trying to gut the core tenants of insurers’ business model to appease the fossil fuel interests entrenched in their state. This onslaught of legislation from Texas is an attempt by the far right to create an economy that serves the interests of dirty fossil fuels at the expense of the health of Texans and pension holders.
