Sustain: Building an ESG-focused ILS manager
Starting with a blank canvas allows for an insurance-linked securities (ILS) investment management business to be constructed with sustainability and ESG at its core, Paschal Brooks, co-founder of newly launched Sustain ILS Management told Artemis.
Sustain ILS Management was launched this week by well-known industry executives Brooks, most recently of AlphaCat, and his co-founder Justin Hull, most recently of Aspen.
Sustain ILS Management will be a new independent insurance-linked securities (ILS) investment manager specifically focused on sustainability and environmental, social, governance (ESG) investment opportunities within ILS and reinsurance.
With a mission to begin deploying capital into risks at the January 1st 2023 reinsurance renewals, Brooks and Hull are busy constructing their business operations and developing relationships with strategic partners.
Artemis spoke with Brooks to understand a little more about the thinking behind the launch of Sustain and why it might be different, being built from the ground-up with ESG in mind.
Brooks started by explaining what had led himself and Hull on the path to creating an ILS fund manager with a singular focus on sustainability.
“We felt it was time to actively pursue a sustainable investment strategy within the ILS space and specifically we have the opportunity with a new business venture to build it from the core out,” Brooks said.
“We wanted to take an approach where, instead of trying to recast or label processes, as green or ESG friendly, we wanted to actually design the business around a sustainable underwriting approach.
“It takes some evolution and rethinking in terms of approach and what we’ve centred on is that we think an ESG framework can be a very useful process for analysing the parts of underwriting that don’t easily fit into a cat model,” he continued.
Critical to this was identifying a strategy and scoring rubric that would respond to the criteria that the co-founders believe will enable the construction of a more sustainability focused ILS investment portfolio, with ESG qualities deeply embedded into it.
Brooks told Artemis that, “What we want to do with Sustain is take a more quantitative approach, so we’ve identified factors we think are important and categorised them within our ESG framework.
“The key thing is we wanted to highlight factors that actually have an impact in terms of underwriting performance.
“Specifically, when we’re evaluating reinsurance, the claims performance is what we’re most concerned about, so what factors are there about a company, how they build a portfolio, and how they analyse risk, that could lead them to under or out-perform a cat model.
“So, in designing our scoring methodology, we’ve tried to emphasise those factors we think are most likely to have an impact.”
Sustain ILS Management will have a focus on property catastrophe risk, or risks that can be impacted by natural events, so maintaining the relatively uncorrelated features investors appreciate about ILS as an asset class.
But Sustain sees its approach as a way to both reward and also incentivise ceding companies as well, with those with the highest ESG quality likely to benefit by developing a relationship with the ILS manager.
“The goal of the overall strategy is to reward insurers and reinsurers that are performing better in terms of ESG considerations and provide them preferential pricing,” Brooks explained.
“So, that’ll show up in our ESG scoring and then it’ll be a credit in terms of the pricing we can offer.”
Going on to say that, “It’s more about trying to drive improvement within the industry, as insurance is at the core of the financial system.
“So, if we can reward companies that are performing better on these metrics then it’ll have an outsized impact in the overall economy.”