Insurance Commissioner Godfread points to softness in ESG definitions, anti-coal sentiments as points of concern
I want to begin this column with a shameless plug. As you are planning for your summer vacation in 2024, I want to encourage you to visit North Dakota. I get it. It’s probably not your first choice and probably an idea out of left field, but I wouldn’t recommend it if I didn’t support it. There’s a lot to explore here in the Peace Garden State. From Theodore Roosevelt National Park in the west to Fargo in the east, North Dakota has a lot to offer.
While North Dakota may be a hidden gem in the Upper Midwest, something not so hidden is this state’s level of energy and agriculture production. Our state ranks first in lignite coal production, first in the production of 13 different crops, third in crude oil production, fourth in biodiesel production capacity, and fifth in wind energy. Needless to say, North Dakota is an energy and agricultural powerhouse that supplies these critical resources to every corner of the U.S and across the globe.
With the growth of electric-powered homes, vehicles, and machines, an attitude has developed to eradicate fossil fuels from all aspects of life as quickly as possible. The fact of the matter is, we as a society are nowhere near a complete end to fossil fuels. We have witnessed cold winters and hot summers that put a major strain on our electric grid, which cannot meet the needs of consumers as-is. Electric vehicle charging stations are not common in rural areas. In short, our infrastructure is nowhere close to being suitable for this type of massive shift. Ditching oil and gas at this premature stage is detrimental to everyone and comes with unintended consequences.
The financial services industry in recent years has taken a cautious approach to energy production, including the insurance sector. Companies have started experimenting with environmental, social, and governance (ESG) policies that influence their approaches to various issues. A concern I have is the broad implementation of these policies may make it nearly impossible for oil refineries, coal plants, and other fossil fuel production facilities to access affordable insurance products. As a result, plants are forced to close without the protection of an insurance policy. For those lucky enough to access insurance, it likely isn’t affordable – forcing energy prices to increase.
There’s no formal definition of ESG. I continue to work with regulators across the country to determine if there is common consensus and even a common definition of ESG. That work is in the very early stages at a national level, but we have also begun work at the state level to address the effects of ESG on insurance. The 2023 legislative session in North Dakota looked at ESG and offered ways to address it. House Bill 1429 was signed into law, prohibiting insurance companies from denying coverage based solely on ESG policies. Legislators also tasked state officials with studying the effects of ESG on multiple industries, including insurance. When completed, this study will create the foundation for future policy strategies to continue to define North Dakota as a global leader in agriculture and energy. Information and recommendations will be presented as an easy-to-navigate website that provides ESG context, an overview of the current landscape, developments since the 2023 North Dakota Legislative session and policy and program recommendations for consideration during the 2025 North Dakota Legislative session.
The insurance industry shouldn’t be put in a position to be either energy regulators or climate regulators, neither of which are our specialty. Insurance regulators are financial regulators. We can recognize the changing climate and the severity of storms and losses, but we aren’t in the best position to establish a national energy policy; that should be left to Congress. Insurance can be part of the equation, but only after we establish a plan of action.