Twelve Capital ILS funds get ESG classification under Article 8, EU SFDR

The commingled insurance-linked securities (ILS) and catastrophe bond funds managed by specialist Twelve Capital have achieved an ESG relevant classification under Article 8 of the EU’s Sustainable Finance Disclosure Regulation (SFDR).

As environmental, social and governance (ESG) becomes an increasingly important topic for the ILS fund manager community, Twelve Capital has responded by working to achieve this classification.

Managing a range of ILS, catastrophe bond and also reinsurance equity and debt strategies, Twelve Capital signed up to the United Nations Principles for Responsible Investment (UN PRI) in March 2020 and has embraced ESG appropriate processes in its investment portfolio management and risk selection activity.

The company uses its reinsurance relationships, industry expertise, and also an in-depth, proprietary research process to help it screen and assess relevant environmental, social and governance (ESG) criteria and systematically integrate them into its investment analysis, the manager said.

Taking these quantitative and qualitative insights, Twelve Capital feeds the into its asset allocation process and takes them into account in the selection of investment opportunities.

These ESG analyses can lead to the exclusion of securities linked to certain business activities and industry sub-sectors that are deemed to have a detrimental impact on the environment or society, Twelve Capital explained.

This work has now led to Twelve Capital is gaining a formal recognition of its commitment to ESG practices, with a number of the investment managers’ commingled funds complying with Article 8 requirements under the new transparency obligations imposed by the European Unions SFDR.

Article 8 states that investment products should promote, amongst other characteristics, environmental or social characteristics, or a combination thereof, as long as the companies in which the investments are made follow good governance practices.

The EU SFDR looks for an active approach to ESG, so processes need to be embedded within an ILS fund managers’ investment activities.

Urs Ramseier, CEO and co-founder of Twelve Capital, said, “There is a growing awareness within the financial industry that non-financial issues such as climate change, governance and social issues may directly impact performance. Twelve believes that consideration of environmental, social and governance factors may help preserve clients’ assets through improved investment decision making. I am happy that continued improvements have focused on enhancing investment processes as they relate to ESG.”

Marcus Rivaldi, Analytics leader at Twelve Capital, also commented, “As the (re-)insurance industry adapts to the new regulatory landscape of ESG transparency, Twelve Capital’s aim is that its investment process continues to deliver the clear analytics outcomes our investors are looking for.”

Environmental, social and governance (ESG) issues are seen as a critical development for the ILS market and for insurance and reinsurance more broadly.