A few weeks ago, California Insurance Commissioner Dave Jones fired back against a group of twelve oil and coal states that have threatened legal action over the Climate Risk Carbon Initiative. Now, fourteen environmental organizations are standing together to protect the same initiative from legislative assaults launched against it from within the state.
Senate Bill 488, now before the California Senate Appropriations Committee, has been amended with language to limit the Insurance Commissioner’s ability to issue data calls, both in the specific instance of the Climate Risk Carbon Initiative and for other areas in the future. Opposing SB 488 in its amended form is a critical step in defending the Commissioner’s regulatory authority to enhance climate risk disclosure and improve the transparency of insurers conducting business in the state of California. Opposing Senate Bill 488 also pushes back against the corporate interests that have been emboldened by an administration intent on reversing environmental protections and climate action.
So what is the Climate Risk Carbon Initiative?
Insurance companies in California earn revenue from their underwriting activities that include the premiums collected from policy holders (estimated at $289 billion annually) and the returns on investments of those premiums. To maintain financial stability, Commissioner Jones is charged with ensuring the insurance companies are financially sound and are not vulnerable to the kind of volatility that would have a detrimental impact on an insurance company’s liquidity and in turn its ability to pay policyholder claims.
Commissioner Jones launched the Climate Risk Carbon Initiative in January 2016 to evaluate the degree to which the investments of California insurers might be impacted by the financial risks of climate change. The initiative includes two parts. First, all insurance companies doing business in California are asked to voluntarily divest from thermal coal. Second, Commissioner Jones asked insurers doing business in California with over $100 million in annual premiums to disclose their investments in coal, oil, and natural gas companies. By using data calls and surveys, Commissioner Jones has directed the California Department of Insurance to collect responses from insurance companies that conduct business in the state and to maintain a searchable, publicly available database that details which insurers doing business in California are invested in oil, gas, and coal and in utilities that rely on oil, gas, and coal.
The Climate Risk Carbon Initiative Must Be Protected
Senate Bill 488 seeks to restrict the Insurance Commissioner’s ability to collect valuable financial information about the companies he regulates. But failing to account for climate risk, specifically carbon transition risk exposure, flies in the face of credit rating agency findings like Moody’s, ignores statements from the Securities and Exchange Commission, and is contrary to public statements from some of the world’s most influential investors and asset managers that acknowledge the material financials risks that climate change poses. As CIEL and Mercer Investments documented in our Trillion Dollar Transformation reports, failure to acknowledge the financial risks that climate change presents may be detrimental to institutional investors, like public pension funds, and may trigger liability for their fiduciaries for failing to act with prudence.
This effort to legally restrict the Commissioner’s power to regulate is both persistent and insidious. California legislators had added similar language to two earlier bills – Assembly Bill 566 and Assembly Bill 601 – but neither made it through the Assembly. Senate Bill 488 was originally intended to “add veteran and lesbian, gay, bisexual, and transgender (LGBT) business enterprises to the entities for which” reporting by insurance companies would be required. In fact, Commissioner Jones himself championed the bill. Now, those who would stymie action on climate disclosure have inserted harmful language into an otherwise admirable bill. Not only does this effort seek to roll back progress on climate action to appease corporate interests, but it tries to do so by attaching a poison pill to a bill otherwise worth passing, an effort likely intended to sow divisions among the progressive community. That community is instead standing up and demanding that this harmful language be stripped from SB 488 and that these shadowy corporate tactics get brought into the light.
Ideally, California’s elected officials will remove all the added language and return the bill to its original unamended form. This bill would leave the Climate Risk Carbon Initiative intact, allowing the Insurance Commissioner — and the public — to gather crucial information about how exposed its insurers are to financial climate risk.
Moving closer to achieving the ambitions of the Paris Agreement and transitioning away from fossil fuels to a low-carbon economy in the US will require supporting the most progressive states and their regulators against attacks by fossil fuel interests. Commissioner Jones’ Climate Risk Carbon Initiative must continue because the data call and survey process fosters transparency that supports financial stability. This kind of regulatory oversight is needed now more than ever as private and institutional investors and global regulators acknowledge the vulnerability of fossil fuel assets and industries to stranded asset risk.
By Steven Feit, Staff Attorney
Originally posted on August 22, 2017