How Mandates Like ESG Distort Markets and Drive Up Costs for Insurance and Housing (EventID=116212)

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Connect with the House Financial Services Committee Get the latest news: https://democrats-financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/HouseFinancialCmte Follow us on Twitter: https://twitter.com/FSCDems ___________________________________ On Friday, July 14, 2023, at 9:00 a.m. (ET) Housing and Insurance Subcommittee Chairman Congressman Davidson and Ranking Member Congressman Cleaver will host a hearing entitled, “How Mandates Like ESG Distort Markets and Drive Up Costs for Insurance and Housing." ___________________________________ Witnesses for this one-panel hearing will be: • Mr. Jerry Theodorou, Director of the Finance, Insurance and Trade Policy Program, R Street Institute • Ms. Alicia Huey, Chairman, National Association of Home Builders (NAHB), and President of AGH Homes, Inc. • Mr. Bill Boor, President & CEO, Cavco Industries, on behalf of the Manufactured Housing Institute • Ms. Caroline Nagy, Senior Policy Counsel for Housing, Corporate Power, and Climate Justice, Americans for Financial Reform ___________________________________ The hearing will highlight how government-imposed mandates like environmental, social, and governance (ESG) increase the cost and limit the availability of insurance and housing in America. Such mandates and other regulations at the federal, state, and local levels distort markets and increase the unaffordability of products for consumers. The Committee will explore these impacts and highlight solutions that lower costs and expand consumer choices. Summary Without question, the imposition of government regulations and mandates at the federal, state, and local level adds cost to our economy. These requirements, of course, come with trade-offs. Those that noticeably improve areas like health and safety at minimal cost are generally seen as worthwhile, while others that offer no discernable benefit or add disproportionate costs can negatively affect consumers. Striking the correct balance is essential to preventing market distortions and maximizing consumer choice and product availability. Both the insurance and housing markets are particularly influenced by a wide array of government regulations and mandates that add to the costs faced by consumers. For insurance, which is largely regulated at the state level, consumer prices are affected by government mandates on the factors that go into the modeling of risk and setting of rates across a population, requirements on how and where coverage must be made available, and other social objectives such as state-level environmental policies. For housing, such policies include exclusionary and restrictive zoning requirements, questionable environmental mandates, adherence to social goals that distort risk-based pricing, and misguided economic policies that have increased the cost of construction and the shortage of labor. While these requirements are borne of genuine concerns about limited availability or affordability, they often have the paradoxical effect of producing higher costs and fewer choices in the housing and insurance sectors. What is ESG? One type of mandate that is affecting housing and insurance providers is ESG, which stands for “Environmental, Social, and Governance.” According to the Corporate Finance Institute (CFI): “ESG is a framework that helps stakeholders understand how an organization is managing risks and opportunities related to environmental, social, and governance criteria.” Broadly speaking, ESG refers to the environmental, social, and corporate governance factors that are taken into consideration when a business is making fundamental decisions. The use of an ESG framework for decisionmaking, which has become more popular over the past few years, has widespread implications for consumers especially regarding where and when capital is invested in a market. Increasingly, some aspects of government have seized upon the ESG movement to expand their regulatory authority beyond its traditional limits. Regulators are using ESG to force businesses into different capital allocation choices at the expense of their fiduciary duties to shareholders, customers, and employees. As the CFI has stated: “ESG has changed how capital allocation decisions are made by many of the largest financial services firms and asset managers in the world.” These efforts have the potential to influence all sectors of the economy based on the social preferences of regulators and not their prudential authorities. As a result, ESG mandates can have a significant impact on the cost and availability of products like housing and insurance for consumers across the country without discernable benefits. ESG’s Impact on the Insurance Industry As mentioned above, insurance is primarily a state-regulated product. Since enactment of the McCarran-Ferguson Act in 1945, insurance companies have been subject... Hearing page: https://democrats-financialservices.house.gov/events/eventsingle.aspx?EventID=410562