Texas’ fight against environmental, social and corporate governance policies may soon expand to another front: insurance companies.
The state’s anti-ESG push has focused on financial firms so far, requiring state pensions to divest from asset managers that “boycott” fossil fuels and excluding banks from underwriting bond sales over their gun safety rules.
The Texas laws took effect in 2021, and the targeted companies include BlackRock, Citigroup, Credit Suisse, UBS and more. Just last week, the Texas comptroller sent letters to five state pension funds and the permanent school fund, urging their leaders to divest holdings and cut fees to the financial firms.
Soon, the Texas Senate will introduce a bill to penalize insurers whose ESG policies threaten the oil and gas business, just as lawmakers have done with banks, state Sen. Bryan Hughes, R-Mineola, said on Wednesday.
“Obviously, if you can’t get money for your project and you can’t get insurance for your project, that shuts it down,” Hughes said at an event held by the Texas Public Policy Foundation, a conservative think tank in Austin. “We’re gonna make sure that everywhere we see them on attack, we’re pushing back. We’re pushing back hard.
“If they’re gonna mess with money that belongs to Texas retirees and undermine the very Texas economy, we’re gonna teach them some manners,” Hughes said.
The crowd in the hotel conference room burst into applause, as it did several times during the 70-minute panel discussion with three key players in the state’s anti-ESG movement.
Hughes chairs the Senate’s state affairs committee and hosted a high-profile hearing in Marshall in December, summoning executives from BlackRock and other financial firms. Texas Comptroller Glenn Hegar, who’s in charge of deciding which companies are “boycotting” energy, weighed in on his office’s progress. And Jason Isaac, a former state representative who moved to the Texas policy foundation four years ago, helped draft the anti-ESG proposal that became Texas law.
Republicans believe ESG policies steer investors away from fossil fuels and that “denying capital” to energy businesses makes energy “less affordable and less secure.” The criticism is part of a broader Republican backlash against “woke” policies, and the title of Wednesday’s session reflected the attitude: “ESG: Everyone’s Suffering Guaranteed.”
Isaac said aggressive environmental policies are being weaponized against responsible producers in America, often to the benefit of foreign energy producers such as the Chinese: “I refer to it as the China ESG agenda, because I believe that’s what it is,” he said.
Despite such fears, the Texas oil patch has been doing quite well lately. Natural gas production in the state hit an all-time high last year, with volumes almost 11.6% more than in 2019, before the pandemic. Texas oil production in December was the second-highest on record, behind only the 2019 peak.
Combine high production with high prices, and many are reaping the benefits, including the state. Tax revenue from oil and gas production topped $10.8 billion for Texas last year, more than double the total for fiscal 2019, according to the comptroller.
Hegar is often asked what Texas leaders are trying to accomplish by targeting companies over their environmental policies. “It’s not trying to punish,” Hegar said. It’s more about “trying to change the dialogue and hopefully open people’s eyes.”
He cited movement by financial firms, including Vanguard’s December decision to withdraw from the Net Zero Asset Managers initiative. That’s a group of global money managers supporting the goal of net zero greenhouse gas emissions by 2050 or sooner.
“We’re having a change in the conversation, and I think that’s important,” Hegar told the audience. “And I think Texas is the one that initiated that conversation — really forced that conversation to happen.”
Last year, his agency was responsible for creating the list of 10 financial firms “boycotting” energy, which included some of the world’s top asset managers and banks. The list will probably be updated this month, he said, and “there will be a new addition.”
Hughes said lawmakers would do more legislating on the topic in the current session, including extending ESG sanctions to asset managers handling university endowments and maybe municipal funds: “If you’re managing that money, you owe it to the people of Texas [to be] maximizing shareholder returns,” Hughes said. “Don’t play politics with their money. If you do, we’re going to hold you accountable.”
He wants lawmakers to act against insurers, too, and Isaac said he’d recently testified in Indiana, where an electric company said it could get only one bid for insurance, down from seven bids in the past.
The Hartford, a leader in property and casualty insurance, once put out a press release, Isaac said, “that they’re no longer gonna make insurance policies available for companies that are in the oil and gas industry.”
That’s not exactly right. In December 2019, the company said it would no longer insure or invest in companies that generate more than 25% of revenues from coal or from extracting oil from tar sands — a process used primarily in Canada.
“We view the transition to a greener society as a business imperative and are proud of our progress, but we have never indicated an intent to stop underwriting oil and gas,” a Hartford spokesman said in a statement Thursday.
Despite pressure from some shareholders to stop supporting fossil fuels, the spokesman said, “We have publicly indicated our view that divesting or disassociating with traditional energy, like oil and gas, would be a strategic error and counterproductive to the global energy transition.”
ESG factors are not part of most risk-based premium calculations by insurers, according to a report by Fitch Ratings. But they’re expected to have more influence on insurers’ underwriting and investment decisions — and their credit ratings.
“This will include discussion of which ESG issues are most material across the lines of business from either a financial or regulatory/supervisory perspective, or whether stakeholders are raising specific ESG issues that may result in reputational or ethical risks,” Fitch said.
Hegar addressed one of the confounding issues in Texas’ anti-ESG push: How can the state say a company “boycotts” oil and gas when it has billions invested in the sector?
BlackRock has over $100 billion invested in Texas energy, including $31 billion in the past two years. Credit Suisse has participated in several billion-dollar mergers and asset sales in the Permian Basin. And both BlackRock and Credit Suisse are labeled as boycotters.
“I’ve said very clearly that the definition in state statute is not the Webster [dictionary] definition,” Hegar said. “In other words, you can have investments in oil and gas, but it’s not necessarily what you’ve done in the past, it’s what you’re at today and where you’re going in the future.”
If that’s still unclear, maybe Jason Isaac summed up the prevailing sentiment among many Texas leaders. He held up a print-out of a December news story that featured his comments and photograph.
“One of my favorite quotes is on this New York Times piece,” he told the audience.
Then he read a Thanksgiving Day tweet cited in the story: “Today, I’m thankful to live a high-carbon lifestyle and wish the rest of the world could, too.”
He believes more carbon would spread economic prosperity more widely, especially to lower-income countries.
What Isaac didn’t mention is the same story also said: “The Texas Public Policy Foundation has spread misinformation about climate science” and “frequently seized on current events to promote dubious narratives.”
“With YouTube videos, regular appearances on Fox and Friends, and social media campaigns, the group’s executives have sought to convince lawmakers and the public that a transition away from oil, gas and coal would harm Americans,” according to the story.
