Background

Since the 1990s the UNEP has been working with the financial services sector in developing environmental management strategies and in 2021 it convened the NZIA the members of which made voluntary commitments on reaching certain net-zero emission targets by 2050.   In May 2023, an intervention by 23 conservative State Attorney-Generals in the United States alleged that participation in NZIA constituted unlawful antitrust activity. In the following months, numerous members exited NZIA for their own reasons, including the desire to not be distracted by purely political and ideologically motivated accusations.  By the end of July 2023, NZIA membership was at 11. By January 2024 press reports indicated that the remaining members and the UNEP were in discussions to restructure the group.

The Forum for Insurance Transition to Net Zero

FIT launched with 19 founding members comprising insurers and reinsurers from a variety of jurisdictions, including Africa, Asia, Europe and the Americas.  The UNEP expects the membership to increase as FIT becomes fully operational. The UNEP will chair the group. Two consultative groups have been formed to provide advice and input on FIT’s activities.  These groups are:

• The Consultative Group of Insurance Regulators and Supervisors – with representatives from 16 different insurance regulatory and supervisory authorities from all regions.
• The Consultative Group on Science, Research and Civil Society – with 11 representatives from academic institutions and civil society organisations from all regions.

Importantly, FIT is supported by a legal team that provides advice on antitrust and competition, sustainability, insurance, and finance law.

FIT’s objective is to foster the availability of insurance and finance for transition projects, technology, and net-zero activities. It will engage in the following activities:

• Advancing frameworks for net-zero insurance metrics and voluntary targets, and developing new net-zero insurance concepts,
• Developing a net-zero transition plan framework for insurance market participants,
• Engaging with the real economy on the development of net-zero transition plans by corporates across different sectors, and
• Tackling challenges and opportunities to develop insurance solutions and taxonomies that would support the net-zero transition.

Comment

The insurance industry is now grappling with a host of issues, including the rise in anti-ESG sentiment in the U.S. and elsewhere, an increase in regulatory scrutiny in the UK and Europe, and the question of how a new U.S. government might impact ESG. Armed with what appears to be strong legal support, FIT is a welcome and timely response to the anti-ESG movement. It will assist insurers and reinsurers with navigating the increasingly complex and politically fraught energy transition. Nonetheless, members must take caution.   Emboldened by their claimed success dismantling the NZIA, conservative state attorneys general, state insurance commissioners, state legislatures, and the U.S. House of Representatives will no doubt seek to focus their ire on FIT.  Conservative state attorneys general who seek to forestall the sustainable transition are likely to repeat their unsupported antitrust claims and seek to threaten and intimidate FIT members to leave the forum.

FIT members are well-advised to have a thorough and ongoing understanding of law and politics in the states in which they conduct business. Knowing where allyship and other support exists within anti-ESG states is critical to pushing back against anticipated enforcement actions. A keen understanding of developing law in state and federal courts is essential.

And, as the 2024 Presidential election approaches, anti-ESG activity in the US is likely to  continue to increase, especially as DEI-related assaults gain traction. To address this, insurers operating in the US will want to  consult their own individual counsel who understand the attorney general landscape, the activities of state legislators, and have a pulse on emerging law. Indeed, a Trump presidency likely means that federal agencies will no longer be supportive of ESG. Appointments of notable ESG conservatives into key positions at the Department of Justice, Federal Trade Commission, Securities and Exchange Commission, Department of Labor, and other relevant agencies will likely follow. Names such as Vivek Ramaswamy, Governor Ron DeSantis, former Kentucky Attorney General Daniel Cameron, Texas Attorney General Ken Paxton, House Judiciary Chairman Jim Jordan, and dozens of others may be in play. Should any of them be selected to leadership positions under a new Trump presidency, they will be well prepared to deploy the full range of anti-ESG investigatory and enforcement action to augment that which is already taking place at the state level.

Our Sustainable Finance & Investment practice brings together a multidisciplinary global team to support our clients in this mission-critical area.

This note is intended to be a general guide to the latest ESG developments. It does not constitute legal advice.

Authored by Kirsten Barber and Karl Racine.