The Credit Suisse Insurance Linked Strategies (CSILS) team wins this award for its pioneering work on developing an ESG framework for insurance-linked securities (ILS), and in particular for catastrophe (cat) bonds.
ILS and cat bonds are an important and growing source of capital to finance the transfer of peak risks, typically arising from severe windstorms, earthquakes and floods.
While some consider ILS to be an ESG investment by default – most of the time, the structures are used to help individuals, businesses and communities finance their recovery after a catastrophe – there is room to improve the sustainability of deals.
As a manager of cat bond portfolios, Credit Suisse was aware investors were increasingly demanding ESG information about their assets, but there were no existing standards or protocols for structuring these disclosures. Credit Suisse was also working to improve understanding of ESG risks and opportunities across the firm.
In response, the CSILS team developed a multi-layer framework for assessing the ESG credentials of ILS deals. The framework demands information about the sponsor, the transaction, contract and instrument in which the underlying collateral is invested in.
This enables screening for exclusions: in the case of CSILS, this includes gambling, lotteries and certain marine and energy exposures. The information also permits evaluation of the degree of alignment with UN Sustainable Development Goals. The framework considers the lack of information on aspects such as the look-through to the ultimate beneficiary, and makes prudent assumptions to account for this existing lack of transparency.
"Our proprietary ESG scoring resulting from this assessment ensures that cat bonds not only have an attractive risk-return profile, but also meet our ESG standards, and thus aims to make a positive contribution to society and the environment," says Eric Blattmann, head of distribution and product strategy at CSILS.
Collaboration was key to the success of the initiative, with the CSILS team involving not only colleagues in Credit Suisse – including the investment, sustainability, reporting, compliance and risk management teams – but counterparties and, crucially, the sponsors of the cat bonds that may need to supply additional data to facilitate analysis.
The framework allows ESG assessment of individual securities as well as whole portfolios. Currently, the framework is incorporated into one of CSILS' cat bond funds, but the firm is working on expanding it to others.
Industry-wide collaboration is also kicking off under the ILS ESG Transparency Initiative, a group of 11 ILS fund managers where Credit Suisse is a founding member.
"We are committed to driving the shift towards higher ESG transparency standards within the ILS industry through active dialogue with our counterparties and peers," Blattmann says.
"Through engaging for more transparency on various ESG metrics and proactive stakeholder engagement, we aim to guide the ILS industry towards a more sustainable and socially responsible future."
