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Responsible Investment policies (ESG) can provide allocation edge: SBAI


Insurance-linked securities (ILS) asset managers could give themselves an edge in the allocation process, if they have a “well-defined and thoughtful” Responsible Investment policy, according to the Standards Board for Alternative Investments (SBAI).

sbai-logoThe Standards Board for Alternative Investments (SBAI) has developed a Responsible Investment framework for alternative investment managers, seeking to assist them in navigating the complexities of developing an approach.

Developed by the SBAI’s Responsible Investment Working Group, a memo published today provides guidance on key considerations for asset managers, including those specialising in insurance-linked securities (ILS) and other reinsurance linked investment strategies.

Environmental, social and governance (ESG) issues, which include responsible investing, is seen as a critical development for the ILS market and for insurance and reinsurance more broadly.

So, with ESG investing a growing focus for the insurance-linked securities (ILS) market, the SBAI’s guidance will provide another useful input.

Our recent ESG survey, undertaken in cooperation with Synpulse Management Consulting, explained that, ESG is seen as having huge strategic relevance for risk transfer & ILS markets, but that while ESG is perceived as very important, there is an evident gap between perception and actual practice.

The SBAI memo covers: Responsible Integration of RI-related risks, Responsible Asset Selection and Ownership, and Responsible Corporate and Market Citizenship. It also details the foundations of an RI Approach, including resource requirements, data, governance, and disclosure to investors.

Kai Rimpi, Director, Hedge Funds at Varma Mutual Pension Insurance Company explained why this is important, “The review of Responsible Investment policies during the due diligence process is now becoming more critical. Asset managers with a well-defined and thoughtful policy will give themselves an edge in the allocation process, as these policies begin to become a must-have for asset managers. This memo provides a powerful toolkit for these managers to produce a clearly defined and transparent policy.”

Jason Mitchell, Co-Head of Responsible Investment at Man Group added, “As responsible investment (RI) expands and matures, the SBAI continues to produce essential support to the alternative investor community. From guidance that covers policy development, disclosure, transparency, investment process and data, the SBAI RI Memo series provides institutional investors a blueprint for understanding its nuances and nomenclature, and ultimately implementing a well-rounded RI approach.”

Brandon Gill New, Senior Portfolio Manager, Capital Markets at OPTrust also said “Responsible investment encompasses many different issues and there is no one-size-fits-all approach. It is important to understand asset managers’ responsible investment policies and understand how those policies are translated into investment decision-making and stewardship activities. We at OPTrust welcome constructive dialogue with managers on responsible investing; there is a learning curve for all involved as the industry develops and refines strategies and approaches in this critical area.”

The SBAI intends to publish a deep-dive on Responsible Investing for ILS and reinsurance investing in future, as it looks to bring valuable insights to specific alternative investment verticals.

This upcoming memo will look at the practical implementation of Responsible Investment approaches in different alternative investment strategies, including Long-Short Equity, Macro, Credit, Systematic and Insurance Linked Strategies, the SBAI said.

Winning allocations is not yet dependent on having an ESG or responsible investing policy and framework in place at alternative investment managers, but it is likely to become a prerequisite as more institutional investors become focused on ensuring the use of their capital is aligned with ESG, responsible and sustainable investment practices.

ILS and reinsurance linked assets in general is likely to be an area of acute focus for investors seeking ESG compatible allocation opportunities, given the inherent social benefits of risk transfer and the deployment of disaster risk capital, that is integrated in the majority of ILS market products.

ILS investment managers Hiscox ILS, Nephila Capital and Securis Investment Partners all participate in the SBAI’s Responsible Investment Working Group.

The SBAI’s Responsible Investment Policy Framework can be downloaded here.

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