Regulatory Updates

Congressional Democrats have been exerting pressure on insurance regulators to integrate climate-related financial risks as part of their supervisory role; a letter was recently sent by Democratic members of the House and Senate to the National Association of Insurance Commissioners inquiring as to “the status of . . . [t]he integrat[ion] of climate-related financial risks into U.S. insurance supervision and regulation.” While this is a fairly technical topic, it nonetheless has immense significance for the structure of the US economy. Based upon decisions by insurance regulators, certain activities may no longer be deemed insurable, or insurance costs can increase dramatically and thus economic activity can be redirected toward areas perceived as green or more climate-friendly (e.g., the locations where new housing developments are approved). The actions of the insurance industry, and how climate-related risk is calculated and integrated, can have significant economic impact.

Litigation Updates

A federal district court judge (WD Mo.) has issued a decision barring the recent anti-ESG rules Missouri had enacted that prohibited investment advisers from utilizing ESG factors when making investment decisions (absent the express written consent of the client). This ruling was based upon broad legal grounds — e.g., that it was preempted under federal law, as well as unconstitutional — and so could serve as a powerful precedent that could discourage similar regulations by other states. Notably, the challenge to the Missouri rules was brought by SIFMA, a trade association for broker-dealers, asset managers (including investment advisers) and investment banks. In essence, the anti-ESG rules enacted by Missouri were sufficiently intrusive and burdensome that the financial industry itself objected. While this decision will likely be challenged on appeal, it serves as an important signal, and precedent, as to how courts will treat these sort of state-level regulations.