Insurance-linked securities (ILS), which enable capital markets investors to provide new capital to the global re-insurance sector, are naturally aligned with environmental, social and corporate governance (ESG) principles.  By its very nature, the ILS sector addresses the need for improved risk transfer for climate-related risks, including floods, windstorms and rising sea levels, as well as pandemics.

ILS managers, such as Leadenhall Capital Partners, are increasingly assisting in global initiatives that ensure climate risk is better understood and priced, for example the Climate Measurement Standards Initiative (CMSI).  This initiative is an Australian-led collaboration that has developed open-source, voluntary guidelines to aid banks, financial institutions and insurers better assess the risks and costs of climate-related damage.

ILS managers participating in these initiatives – and building the wider sustainable investing capabilities in demand from investors – need to address a number of technological and operational considerations.  Ideally, ILS players would be supported by an enterprise-class operational platform that is open, modular, cloud-enabled, multi-asset, and end-to-end.  Enterprise-quality software is the foundation for optimal business operations management including building effective ESG data integration and analysis, technology management, and operating models.  This includes providing data and disclosures that are understandable, consistent and comparable for various collaborations with finance and insurance market participants, climate scientists and government.

The benefits of enterprise-quality software includes significantly improved operational workflows, compliance functionality, and roles-based interfaces – all of which can facilitate and enhance ESG data management.  This applies across client, management and regulatory reporting activities; scoring, rating and analysis tools, including integrations with data providers; and data capture.

Data transformation lies at the heart of most change initiatives.  For alternative investment managers of every conceivable strategy, including ILS, moving from intention to reality in ESG requires a major change journey that is underpinned by data management.  Advanced technology is a crucial enabler for ILS players to realise the promise of ESG and help those holding climate exposed assets measure, quantify, value and manager their exposure to climate risk.

For more information on how ILS fund managers can use advanced technology to address industry opportunities related to ESG, please contact us here

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