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Apr 07, 2022

Insurers Chubb, Travelers and The Hartford face climate proposals

Proponent seeking underwriting practices that do not support new fossil fuel supplies

The SEC has rejected an effort by insurer Chubb to exclude from its proxy statement what proponent Green Century Capital Management describes as ‘a landmark climate proposal.’ The agency’s decision was repeated shortly thereafter regarding the same proposal as filed with The Hartford Financial Services Group and The Travelers Companies.

Specifically, Green Century’s proposal requests that Chubb’s board ‘adopt and disclose new policies to help ensure that its underwriting practices do not support new fossil fuel supplies, in alignment with the [International Energy Agency’s (IEA)] Net Zero Emissions by 2050 scenario.’ According to Green Century, it is the first such shareholder proposal to go to a vote.

Andrea Ranger, shareholder advocate with Green Century, says in a statement: ‘We can now ask insurance companies to adopt policies that align with the IEA report findings, which we believe makes clear that fossil fuel expansion has no place in a net-zero by 2050 future. Insurers like Chubb have enabled the fossil fuel industry to continue business as usual, which has delayed much-needed adoption of clean energy technologies.’

She adds: ‘Insurers have been saying that underwriting fossil fuels, even new fossil fuel projects, requires a careful, calculated approach. We agree, but they should have started the process years ago. Even the current geopolitical conflicts demonstrate how politically charged and risky fossil fuels are and, in our opinion, is another reason for insurers to walk away.’

Green Century writes in its supporting statement that Chubb’s board and management should define the scope, timeframes and parameters of the policy, including defining ‘new fossil fuel supplies,’ bearing in mind the definition that new fossil fuel supplies include exploration for and/or development of oil, gas and coal resources or reserves beyond those fields or mines already in production.

It states in its materials: ‘While Chubb restricts underwriting new coal-fired power plants and underwriting and investing in companies that primarily operate in coal mining and coal power, investors are concerned that [the company’s] efforts are not sufficiently aligned with global efforts to reduce emissions through, for example, the Paris Agreement. Further, the company lags behind European peers.’

Chubb had written to the SEC requesting no-action relief if it omitted the proposal from its AGM, which takes place on May 19. The company sought this relief in part per Rule 14a-8(i)(10), that it has ‘substantially implemented’ the proposal. It argued that Chubb has adopted and disclosed a policy restricting coal underwriting and discloses additional ‘goals, efforts and achievements’ in reducing its greenhouse gas ‘using its underwriting activities to support an orderly transition away from new fossil fuel supplies.’

Chubb also argued that, per Rule 14a-8(i)(3) and Rule 14a-9, the proposal is ‘vague and indefinite’ because it ‘does not define the IEA’s Net Zero Emissions by 2050 scenario and what alignment with it actually means.’ It further argued that, per Rule 14a-8(i)(7), the proposal focuses on Chubb’s ‘ordinary business’ operations by looking to ‘fundamental factors involving its offering of insurance products and services and seeks to micromanage Chubb’s business by determining which products and services [the company] should or should not provide to its customers.’

The SEC did not agree with each of these arguments.

In Chubb’s proxy statement, the board urges shareholders to vote against the proposal, arguing in part: ‘Chubb recognizes the existential threat of global warming and the necessity of moving away from global reliance on fossil fuels. Chubb announced its support for a global transition to a net-zero economy by 2050 and we have acknowledged our responsibility to take action to support and encourage this transition.’

It adds: ‘We are making appropriate commitments on climate action, including limiting certain underwriting activity. But underwriting limitations must be balanced against the essential and core purpose of insurance, which society expects us to fulfill, to provide risk protection for lawful activity. Any such limits on entire classes of activity interfere with this purpose and must be an exception based on analytical, fact-based examination of realistic alternatives.’

A Chubb spokesperson declined to comment.

A few days after releasing its decision regarding Chubb, the SEC issued decisions rejecting requests from The Hartford and The Travelers Companies seeking relief for excluding the same proposal from Green Capital. Both companies argued that the proposal is vague and indefinite, and that it deals with their ordinary business operations.

Among other things, The Hartford argued: ‘The proposal calls for the board of directors… to adopt policies limiting the company’s underwriting practices that would impose inflexible and far-reaching restrictions on [its] day-to-day business without any understanding or study as to whether the policies would achieve the purported underlying objective.’

Travelers stated, among other things: ‘The proposal’s inclusion of the phrase ‘in alignment with the IEA’s Net Zero Emissions by 2050 scenario’ injects significant complexity into the proposal’s request and renders it impossible for shareholders to understand what they are being asked to vote upon. The supporting statement does not provide any information with respect to what the IEA report entails or how the company could adopt policies in alignment with it.’

Writing to each company separately, the SEC stated that it did not agree ‘that the proposal, taken as a whole, is so vague or indefinite that it is rendered materially misleading,’ adding that the proposal ‘does not seek to micromanage the company.’

A spokesperson for The Hartford says in a statement: ‘We regularly engage in open dialogue with our shareholders and value their perspectives. The Hartford gives each shareholder proposal a thorough review and due consideration. We view the transition to a greener society as a business imperative and are proud of our progress.

‘Our long-standing commitment to sustainability is demonstrated by our actions across the business including sustainable products, transparent disclosure of climate-related goals, risks and operational impacts, and investments in renewable energy. We remain determined to use our resources responsibly to address the challenge of climate change and are committed to keeping our stakeholders informed of our progress.’

A Travelers spokesperson declined to comment.

The Hartford has not filed its 2022 proxy statement, but its 2021 AGM took place on May 19. Travelers has also not yet filed its proxy this year. Its 2021 AGM took place on May 20.