Texas Republicans Bucking ESG Turn Focus to Insurance Industry

Texas Republicans vowing to protect their home state oil and gas industry have expanded their fight against ESG policies from financial firms to insurance companies.

Legislative proposals advancing in the final weeks of the session would limit how the businesses use environmental, social, and governance factors that consider issues such as climate change in their operations. One measure would restrict ESG considerations when insurers set rates. Another would prevent Texas-based insurers from implementing shareholder proposals that limit work with fossil fuel companies or other industries for environmental, social, or political goals.

The focus on insurance follows the state’s 2021 law to punish financial companies deemed to be boycotting fossil fuels—a model Republican legislators across the country are copying. Texas lawmakers said they’re now targeting activist investors who seek to limit the oil and gas industry’s access to insurance.

The industry, anchored by companies such as ConocoPhillips Co. and Valero Energy Corp., paid nearly $25 billion in state royalties and state and local taxes last fiscal year, according to the Texas Oil and Gas Association.

“When institutional investors force insurers into considering subjective external factors such as ESG, both the Texas economy and its citizens will be adversely affected,” state Sen. Phil King (R), who’s sponsoring one of the bills, said at a committee hearing last week.

The concept has support from Gov. Greg Abbott (R), who wrote in a March letter to President Joe Biden (D) that Texas will ensure this year “that insurance companies do not hinder companies from our energy sector to placate ESG advocates.”

Insurance association representatives raised concerns that initial versions of the proposals could lead to unintended consequences for an industry where business practices are based on determining risk, such as setting rates in hurricane zones or areas prone to wildfires. Lawmakers revised the bill impacting how insurers set rates to clarify that companies can still use actuarial principles and consider relevant information, even if it could also be considered an ESG factor.

“We’re obviously watching the process. It’s not over until it’s over,” said Jay Thompson, a lobbyist representing the Association of Fire and Casualty Companies in Texas, which has testified as neutral on the proposals.

Considering Risk

The measures have the backing of the Texas Public Policy Foundation, an influential conservative group that backs the fossil fuel industry. Foundation officials were instrumental in crafting the state’s 2021 boycott law and have since pushed anti-ESG legislation in other states.

For insurance, the Texas Department of Insurance licenses and regulates companies that operate in the state. The legislative proposals would address concerns that oil and gas and other industries are having an increasingly harder time getting coverage, said Jason Isaac, director of the foundation’s energy initiative, noting he supported harsher changes than those under consideration.

“I think if these companies are anti-Texas, then Texas should not reward them with doing business in the state,” Isaac said.

The ratemaking proposal initially drew concerns that the language could limit insurers from considering the risks of weather changing due to climate change or the dangers of a job in an oilfield for a worker’s comp policy. A revised version (S.B. 833) would restrict companies from using ESG factors to charge differing rates “for essentially the same hazard.” The bill, though, would not apply to using those factors for a business purpose or if they’re relevant to risk.

Groups such as the Texas Association of Life and Health Insurers are neutral on the most recent version that passed a state Senate committee last week. The association appreciates the changes made to ensure companies can continue to use sound actuarial principles in ratemaking, CEO Jennifer Cawley said.

The American Property Casualty Insurance Association still opposes the bill, though it’s improved over its initial version, Lee Ann Alexander, vice president of state government relations, said in a statement.

“However, in the real world, we believe that any legislation of this type will put insurers in a Catch-22 situation, where they are forced by some states to utilize certain business models and quite possibly very different business models in other states, introducing unnecessary and potentially expensive complexities into the insurance marketplace,” Alexander said.

Chubb Corp. declined to comment. State Farm Mutual Automobile Insurance Co. directed questions to an industry group. The Hartford Financial Services Group, Inc., Allstate Insurance Co., Berkshire Hathaway Specialty Insurance Co., and Progressive Corp. didn’t respond to requests for comment.

Shareholder Proposals

A separate measure (S.B. 1060) would take aim at shareholder proposals deemed political. The bill outlines proposals that limit insurance companies from working with fossil fuels, seek greenhouse gas emission reduction or tracking, or restrict the insurance of entities based on environmental, social, or political goals.

A Texas-based insurance company could not implement those proposals or include them in a proxy statement, under the measure. Backers argue the changes would shield insurance companies from shareholder proposals that are not in their best interest.

“It gives insurance companies some protection,” state Rep. Tom Oliverson (R) said at a committee hearing last week.

In practice, it would be nearly impossible to assess what a company is doing because it’s good business versus acting on a shareholder proposal, said Danielle Fugere, president and chief counsel of shareholder advocacy group As You Sow. The group has asked insurers to measure, disclose, and set targets to reduce their greenhouse gas emissions.

“The insurance companies need to know they don’t need protection from their shareholders, that they can make their own decisions,” Fugere said. “And they don’t need a legislature telling them what they can and cannot do.”

Texas’ anti-ESG priorities are a “major intrusion into corporate decision making,” said state Sen. Sarah Eckhardt (D), who filed a bill this year to repeal the 2021 ESG boycott law. Her bill, which did not receive a hearing, was intended to start a conversation about whether the efforts are harming the state, she said.

Instead, the legislature has doubled down. Another pending proposal (S.B. 1446) would add new requirements against the use of ESG in state retirement system investment contracts and proxy voting.

“You are narrowing your options for your pension investments,” Eckhardt said. “And that is not good for the pensioners.”