NAIC Adopts ESG Statement

On Feb. 21, 2024, the National Association of Insurance Commissioners (NAIC) announced that it had adopted the NAIC Statement on Environmental, Social, and Governance Policies for the insurance sector. The 50-plus state and territorial members of the NAIC unanimously adopted the statement, which the NAIC explained was prompted by the increasing level of debate surrounding environmental, social and governance (ESG) policies.

The statement provides that the NAIC does not anticipate either requiring or prohibiting insurance companies to adopt ESG policies on underwriting, investing or other business decisions. The NAIC members explain that “we have extensive work underway on climate risk, race and insurance, corporate governance, and other related factors to the extent they directly pertain to our responsibility to protect policyholders and supervise the financial health of insurers.”

The statement urges insurers and regulators to “consider the reliability of metrics and the impact of ESG policies on the financial condition of insurers and the availability and affordability of insurance products and services, if adopting such policies.”

According to the statement, legislators, policymakers and “stakeholders” are encouraged to contact state insurance regulators when considering ESG-related legislation or executive action to discuss the potential impact on insurance sector financial strength and solvency.

The NAIC added that the statement had “evolved from discussions that state insurance commissioners initiated over the past few years, prompted by feedback and engagement from diverse stakeholders and the public.”

The statement is consistent with the current approach to ESG by other financial sectors in the United States in that it avoids wading into the now politically charged debate regarding the term “ESG” but cites work to find common ground on many of the concerns underlying the ESG approach, such as climate risk, racial justice and corporate governance, while mentioning financial factors, always a lodestar for insurance/reinsurance regulators.

The NAIC’s somewhat “hands-off” approach contrasts with the more directive measures in place outside the United States, for example in the EU, where detailed ESG-related reporting requirements have entered into force and may influence industry behavior elsewhere, including in the United States.