Two insurance-linked securities (ILS) funds operated by Zurich based specialist catastrophe bond and ILS investment manager Plenum Investments have been accredited with a sustainability FNG Label by the German “Forum Nachhaltige Geldanlagen e.V.”
Our recent survey (results coming soon), found that ESG (environmental, social, governance) is considered as having huge strategic relevance for the insurance-linked securities (ILS) and reinsurance-linked investments community.
Plenum Investments has put significant time and effort into understanding what ESG means in the context of catastrophe bond and other ILS investment fund opportunities.
This is now the third year that Plenum’s flagship catastrophe bond fund has received a recognition of its sustainable investment qualities from the FNG, having received a “star” under the FNG categorisation for the second year running.
There are four levels of sustainability that the FNG can accredit an investment fund with, starting with a basic label which Plenum’s cat bond fund first achieved in 2018, followed by one, two and three star awards.
Sustainable investment gradings are awarded based on a range of criteria related to sustainability, environmental, social and governance factors (ESG).
These include: the institutional credibility of an investment offering; standards enforced around the product and its allocations; the impact that the investment class makes; the manager’s selection strategy; how the manager engages in dialogue around the subject of sustainability; and a range of other ESG KPI’s.
Plenum’s CAT Bond Fund, which now has a track record of ten years, has now been awarded the FNG Label three year’s running, while now the investment manager’s newer Insurance Capital Fund strategy, which invests across catastrophe bonds and also insurance bonds, has also been awarded a one star FNG Label.
The two ILS funds are the only ones in the market to have such an accreditation.
“The award of the FNG label acknowledges our many years of pioneering work and reflects our ambitions in this market segment,” explained Dirk Schmelzer, Partner and Senior Portfolio Manager at Plenum.
Schmelzer has been responsible for the development of Plenum Investments’ ESG strategy and implementing it into their approach to catastrophe bond investing over the last four years.
“Our form of analysis allows ESG investors to invest according to their vision. It is a milestone for the asset class of CAT bonds,” Schmelzer added.
Sustainability and ESG is becoming a significant component of institutional and high-net-worth investor motivations, while becoming embedded in the global insurance and reinsurance industry as well, so as a result the insurance-linked securities (ILS) sector is also embracing it.
“The fact that the Plenum CAT Bond Fund has been awarded the FNG label for three years in a row emphasizes our commitment to sustainability. We are particularly delighted that the Plenum Insurance Capital Fund, launched earlier this spring, has received the award at the first go,” added Nico Rischmann, founding partner of Plenum Investments Ltd.
With insurance and reinsurance underwriting increasingly aligned with ESG and sustainability related criteria factored in, the ILS market is embedding ESG within its own underwriting and investment process as well.
“The capital market is becoming aware of its responsibility as a bearer of natural disaster risks when it comes to restoring the livelihoods of the people affected, irrespective of whether disasters involve developed or underdeveloped regions of the world. CAT bonds not only promote sustainability, but also safeguard it to a large extent,” Plenum Investments explained.
ESG is becoming a critical factor for investments in some regions of the world, particularly Europe where there is a significant focus on ESG among large institutional investors and banks.
Regulation is coming that will formalise the need for investment managers to have an explicit sustainability strategy.
The FNG’s Label is seen as a sign of quality, in terms of sustainability and ESG practices, helping investors to find investment funds that meet their own ESG allocation requirements more easily.
As a result, it is critical the ILS market and its investment managers embed ESG criteria within their underwriting, risk selection, allocation and management processes, to align with the growing ESG focus among their end-investors.