Investment banking giant Goldman Sachs published an updated environmental policy yesterday, with catastrophe bonds, insurance-linked securities (ILS) and other climate related risk and reinsurance products again taking a central stage within it.
Goldman Sachs recognises the importance of climate adaptation and the opportunity for its business in this area, with its work in insurance-linked securities (ILS) and catastrophe bonds one area of focus.
“We will help our clients more effectively manage exposure to climate impacts through capital market mechanisms, including weather-related catastrophe bonds, and identify opportunities to facilitate investment in infrastructure resiliency,” the investment bank explains in its updated environmental policy.
Goldman Sachs has had a role as one of the leading structuring and investment banking firms operating in the catastrophe bond sector, since the market began in the mid to late 1990’s.
It has been responsible for riving institutional investor capital into the asset class through its bookrunning services, as well as through its work on distributing reinsurance sidecars to investors and ILS fundraising.
The investment bank is constantly looking at ways to take the existing product structures it works with and make them even more useful for climate related risk transfer means.
As a result, the cat bond and weather related risk transfer structures it works with are appropriate tools for it to push within its environmental policy, as it looks to enhance options for clients.
“Effective management of catastrophic risk relating to weather extremes has become increasingly important for our clients,” Goldman Sachs policy explains.
Adding, “We have been a leader in structuring and underwriting catastrophe bonds, which help diversify and transfer catastrophic risks – including from weather-related events such as hurricanes – through the capital markets.
“We have structured over $14 billion of weather-related catastrophe bonds since 2006. Our breadth of financial and market making capacity enables us to be innovative in helping our clients more effectively manage their risk.”
This work is a focus area for Goldman Sachs and one where it sees the opportunity to expand what it is doing, while keeping in increasingly relevant to the ongoing climate discussions.
“Given the increasing focus on resiliency measures by policymakers and the need for greater investment in this field, we will also establish partnerships to develop new models for catastrophe bonds that can better evaluate the benefits of increased investments,” the bank explained.
Part of this is the work to create hybrid financial risk transfer and investment structures that support resilient infrastructure projects, while also allowing for risk transfer, the much discussed resilience bond efforts.
“For example, enhanced physical resiliency, including flood barriers and stormwater detention structures, can improve the ability to withstand extreme weather events, which in turn could potentially be factored into the pricing and financial return models for catastrophe bonds. To that end, we are partnering with financial institutions, foundations, reinsurers and other stakeholders to explore innovative risk management structures related to infrastructure resiliency,” Goldman Sachs policy further states.
In addition, Goldman Sachs will work in the areas of weather derivatives and climate related commodities, “to play a constructive role in facilitating the efficient development of these markets.”
Within this is areas of opportunity such as, helping its clients to better manage their exposure and adaptation to the changing climate, including such areas as climate change-related risk factors and how they contribute to disruption of supply chains and the risk of weather extremes.
As the climate discussion continues to rise up the agenda the use of capital market tools for risk transfer and resilience related issues is only going to rise in importance too.
Goldman Sachs, like many other organisations, is aware that its specialism in ILS could become a valuable commodity as the focus on climate risk moves to financing, adaptation and transfer.
Our upcoming conference ILS NYC 2020, held in New York on February 7th, will feature a session focused on climate, resilience, and socially responsible risk transfer. Register soon to attend.
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