Swiss ILS fund ESG initiative can drive desired change: Piemonte, BKC

The environmental, social and governance (ESG) transparency initiative being undertaken by a leading group of Swiss-based insurance-linked securities (ILS) investment fund managers, has the potential to drive the desired change investors such as the Bank für Kirche und Caritas have been looking for, according to Tommy Piemonte.

Piemonte is the Head of Sustainable Investment Research at Bank für Kirche und Caritas eG, a German headquartered bank and investment house that has been allocating to the catastrophe bond market for some years now.

Piemonte also represents the Bank as a member of Shareholders for Change and participated in an ESG and insurance-linked securities (ILS) roundtable we hosted in December 2020.

The Bank (BKC) and Shareholders for Change have been engaging with catastrophe bond fund managers on the subject of ESG and the need for greater transparency in the insurance and reinsurance market value-chain since 2018.

Discussing this on Linkedin today, Piemonte noted the importance role catastrophe bonds and insurance-linked securities (ILS) can play, in provision of insurance and reinsurance capacity funded by capital market investors.

Piemonte noted that, “In order for this to have a thoroughly positive effect from a sustainability point of view, it must be ensured that the insurance transactions underlying CAT bonds cover sustainable insurance purposes such as for residential property in the event of an incident and do not include insurance purposes that run counter to a sustainable development.”

He explained that while this desired change, in terms of the necessary transparency and look-through to the underlying risks and cedents in an ILS or cat bond contract, has so far not been seen in the ILS market, he is optimistic about the Swiss ILS fund managers’ new initiative.

“Unfortunately, the transparency and commitment of a clear sustainability orientation of the included insurance transactions, in the value chain of the asset class of CAT bonds, is not yet sufficiently present,” Piemonte continued.

Further explaining that this has driven BKC’s and Shareholders for Change’s “intensive engagement dialogue with CAT bond fund managers since 2018,” as they seek to enhance the sectors ESG transparency.

“In this context, we are pushing for increased sustainability orientation and transparency in their fund products on the one hand, and on the other hand for operating their own engagement dialogue along their value chain with insurance brokers and reinsurers – i.e. a “domino engagement”,” Piemonte added.

He said that while cat bond fund managers have been engaging and making efforts to improve transparency along the insurance and reinsurance market value-chain, to help investors better assess the ESG qualities of catastrophe bonds, or other ILS assets, there remains more to do.

So Piemonte is delighted to learn of the initiative of leading Swiss ILS fund managers that we reported on recently here.

To recap, these ILS fund managers have collaborated to develop a data transparency proposal to help enhance environmental, social and governance (ESG) in the ILS market.

Involved in the initiative are: Credit Suisse Insurance-Linked Strategies; LGT ILS Partners; Plenum Investments; Schroders Capital ILS; Solidum Partners; and Twelve Capital.

Piemonte of BKC said that it could become a “game changer” as a single sustainability data requirement, seeking greater cat bond value chain transparency, is now being sought by an aligned collective of ILS fund managers that together represent greater market power.

“This initiative could be the prelude to the desired change of transparency in the CAT bond industry, leading to a stronger sustainability focus in insurance purposes in the medium term,” Piemonte said.

Adding, “We will continue to follow this domino engagement and complement it with direct engagement activities with reinsurers.”

It’s good to see investors also being supportive of the Swiss ILS fund manager-led ESG in ILS initiative.

ESG will be a topic of discussion at Artemis’ upcoming London cat bond and ILS conference. Details and registration can be found here.

ESG investing and the opportunities it presents are a growing focus for the insurance-linked securities (ILS) market. Read more of our insights on this topic here.