Securities, Commodities, Insurance Regulators Face Climate Issues

March 18, 2021 by

The Connecticut Legislature’s Insurance & Real Estate Committee held a public hearing this week on what is believed the country’s first bill requiring insurance companies to disclose the premiums they receive from fossil fuels.

The bill, Senate Bill 1047, could potentially affect all insurers operating in the state.

SB 1047 would require that insurance companies disclose how much they receive annually in fossil fuel premiums and how much they invest in the fossil fuel industry, as well as the climate risk associated with those investments.

The bill also calls on the state’s Department of Insurance to report this information and to report on the department’s efforts to integrate climate risks into the regulation and supervision of insurers.

“States are the leaders in insurance regulation and state insurance commissioners have no choice but to lead in addressing climate risks in insurance,” Connecticut State Sen. Matt Lesser, co-chair of the Insurance and Real Estate Committee, said in a statement. “In Connecticut we are looking at standardized disclosure as a powerful tool to understand the industry’s investment and underwriting risk. The insurance industry is on the front lines of the climate crisis.”

Climate activists argue that since insurance is a requirement for coal, oil, and gas projects to be built and operated, by providing that insurance, U.S. companies enable the industries driving climate change.

“The insurance industry is currently operating with a level of secrecy that no other actor in our financial system has. This makes it impossible to truly understand the scope of their involvement in the climate crisis. That has to change–and that’s exactly what this bill aims to do,” said Tom Swan, executive director of the Connecticut Citizen Action Group, one of over a dozen organizations that signed a letter of support for the bill.

National Law Review

The markets have been active in terms of setting sustainability goals among insurers and other financial firms, but U.S. insurance regulators have not been as active publicly, according to an article this week in the National Law Review.

The article reports that the National Association of Insurance Commissioners’ Climate Change and Resiliency Task Force’s “Disclosure Workstream” met this month and said they would not recommend to its parent task force that the NAIC change its climate risk survey format for 2021.

Insurers can continue, however, to submit either the NAIC survey or a Task Force on Climate-Related Financial Disclosures report. The New York Department of Financial Services has promised to give guidance on the approaches that insurers are taking to manage the financial risks from climate change by April 1.

The National Law Review article notes there has been an “extraordinarily high” volume of climate change news that impacts the insurance industry:

“The range of developments has been broad to say the very least—from fund managers announcing new offerings said to be green and sustainable, to critics denouncing fund managers falling short on sustainability, to Aviva, Citibank and Generali (and others) publishing sustainability achievements or new targets to achieve net-zero emissions, to advances by developers and providers of climate change standards and metrics (e.g., the Geneva Association, Moody’s), to China reiterating goals to reduce its emissions over the next five years, to the politically charged debate within the US Securities and Exchange Commission (SEC) as to which comes first—a new global framework of common metrics and standards to help regulators analyze climate change risk disclosures or stepped-up enforcement effort.”

Securities Regulator

The U.S. Securities and Exchange Commission is pledging to crack down on companies and funds that mislead investors over climate change risks, but that may be easier said than done, according to an article from Reuters published in Insurance Journal.
The SEC has set up a 22-person task force to police public companies that fail to disclose risks from climate change, such as potential depreciation of fossil fuel assets or supply chain disruption caused from flooding or wildfires.

The task force will also scrutinize investment advisers and funds touting sustainable products for so-called “greenwashing.”
With a record $51 billion flooding into sustainable U.S. funds last year, according to Morningstar, investors need to be better informed, the SEC says.

“The commission is responding to investors’ growing concerns about materially misleading statements and omissions about companies’ climate-related risks and activities,” acting deputy enforcement director Kelly Gibson, who is leading the taskforce, told Reuters.
However, the SEC has rarely brought enforcement actions for climate-related disclosure misconduct, and the U.S. has no formal climate-specific disclosure rules, according to the article.

CFTC

Rostin Behnam, the acting chairperson of the Commodity Futures Trading Commission, this week announced that he is establishing a unit to focus on the role of complex financial derivatives in understanding and pricing climate-related hazards.

That follows a request SCE for public input on how to require companies to best disclose climate change risks to investors (see above).

“Climate change poses a major threat to U.S. financial stability, and I believe we must move urgently and assertively in utilizing our wide-ranging and flexible authorities to address emerging risks,” Behnam said in a statement to The Washington Post.

The CFTC action is one of several taken across President Joe Biden’s administration, and it could shift investment decisions across the nation by signaling to markets that it is costlier to invest in fossil fuels, while these policies could make it easier to finance clean energy and other efforts aimed at addressing climate change, the Post reported.

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