A new preliminary prospectus for an ESG focused exchange traded fund that will invest in insurance-linked securities (ILS) and reinsurance-linked assets that have exposure to climate risk has been launched by Impact Shares, an ESG focused investment operator.
Impact Shares, which is a collaboration of financial service and non-profit organisations that provide single social issue environmental, social and governance (ESG) aligned investment solutions, has renamed the ILS strategy to become the Impact Shares Climate Risk Reinsurance ETF.
Previously, when the first iteration of SEC filed documentation for the proposed listed fund became available, the strategy had been named the Climate Risk Reinsurance Corporation.
The Impact Shares Climate Risk Reinsurance ETF will specifically invest in assets from the reinsurance-related securities market that are “exposed to natural perils that may be impacted by increased climate volatility,” the prospectus states.
Being an ESG investment strategy specialist, Impact Shares aims to design and create an ESG appropriate investment opportunity that features sees catastrophe bonds, insurance-linked securities (ILS) and related reinsurance investments within its portfolio.
The company expects this to become a growing area of interest among investors with specific ESG investment goals, given the increasing focus on climate change, climate risk and provision of risk capital to support recovery from disasters.
Impact Shares will serve as the investment adviser to the fund, while Brookmont Capital Management, an SEC registered investment adviser, is set to be the sub-adviser for the Climate Risk Reinsurance Corporation ETF strategy and its founder and CIO Ethan Powell one of the portfolio managers of the new listed ILS fund strategy.
The prospectus states that, under normal circumstances, the Impact Shares Climate Risk Reinsurance ETF will, “invest at least 80% of its net assets, including any borrowings for investment purposes, in reinsurance-related securities with specified trigger event(s) involving natural perils that may be impacted by Climate Risk. Such natural perils include, among other weather-related phenomena, hurricanes, earthquakes, windstorms, tornados, fires, floods, and tsunamis.”
Catastrophe bonds are targeted as the primary asset type for the fund, while it will also be able to allocate capital to other reinsurance securities such as industry loss warranties (ILW’s), event-linked swaps, quota share sidecars and more.
The strategy has also shifted away from an attempt to construct an index of the catastrophe bond market to track, more towards an actively managed approach of selectively investing only in ILS and reinsurance securities that are evident in their use as providers of climate risk capital and protection.
This active approach to risk selection, of only investing in cat bonds and ILS deemed to cover perils that are exposed to climate volatility, may sit well with investors looking to invest responsibly.
Of course, it will need to be demonstrated that risk selection takes into account the fact climate risks are being accurately modelled and are as well understood as possible within transactions, as well as being priced for.
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.