08 Jun 2022

SBAI Toolbox Memo - Implementation of RI in ILS Strategies

Practical guidance for Responsible Investment in ILS funds

Insurance Linked Strategy (ILS) instruments enable investors to access insurance risk through a fund or traded product. It is an asset class that provides value for society, and therefore can be seen to have inherently positive Responsible Investment (RI) characteristics. Instruments such as catastrophe, reinsurance or publicly traded bonds provide the means to recover from disasters helping governments, companies and individuals to rebuild. Dedicated RI approaches within ILS, however, are in their infancy and often do not fit neatly into regulatory or industry-based reporting frameworks. As with many other alternative investment strategies, both the practicality and the effectiveness of RI integration and dedicated RI approaches can vary, and application of these strategies requires careful thought and discussions between asset managers and allocators.

This memo looks at the following for the different instruments traded within these strategies:

  • Data availability and reliability,
  • Responsible Integration: Including financially material RI related risks in the investment process but not pre-defining an investment universe using RI criteria,
  • Responsible Asset Selection: Dedicated RI approaches including exclusions, inclusions, and impact strategies, and
  • Responsible Asset Ownership: Engagement.

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