Rip Reeves will be speaking at the Insurance Asset Management Virtual Summit, North America 2020 in December. To register for the event click here.
Rip Reeves: In the 30 years I’ve been in the investment industry, ESG sensitive investing has certainly evolved.
In the “old days” we may have been prohibited from buying sin bonds and sin stocks for a health care portfolio, for example.
"We analyse investment opportunities best suited for our Enterprise
and culture within a predetermined level of risk."
ESG sensitive investing, in its current state, is a more broad and deep approach to an ethical bias or focus in putting your investment strategy in place.
Given the relative newness of ESG investing, not surprisingly there is quite a bit of variance of process, monitoring and reporting from company to company.
Within our strategy process, we analyse investment opportunities best suited for our Enterprise and culture within a predetermined level of risk.
Rip: I wouldn’t say I’ve noticed a significant difference solely due to the pandemic. There are certainly other social and political factors adding to the conversation of ESG sensitive investing.
I do believe the pandemic has potentially sped up the move towards more ESG sensitivity, especially if your company was already on this path of inclusion in your investment strategy process.
"The pandemic has potentially sped up the move towards
more ESG sensitivity."
We have been ESG “aware” regarding our investment portfolios, so the pandemic didn’t produce any major shift in our process.
Our investment strategy continues to be aligned with our ERM framework and all our risk processes. Therefore, we have not noticed any significant change in focus regarding these issues.
Rip: Our tangible changes are more on the margin, given we came into 2020 with a conservative bias in our investment strategy. Given we’re a global underwriter, we’re a global investor as well.
Over the past couple years, we’ve been generally unimpressed with the risk/reward trade off of investment opportunities. Therefore, current positions regarding duration, credit quality and risk assets had a conservative bias relative to past allocations.
One of the tangible changes we made was to further reduce a small amount of investment risk as the markets recovered through April, May and June primarily given uncertainty in the markets and economic recovery.
"The rating agencies are asking questions during the
annual reviews about ESG."
The second change was with respect to our ERM and ESG work where, no surprise, we added a Pandemic Risk - brilliant, I know.
We generally do quite a bit of stress testing of our investment portfolios, so this addition is consistent with our risk-oriented approach. Prior to the pandemic, such a risk was rolled up into Strategic Risk or Volatility Risk.
The rating agencies are asking questions during the annual reviews about ESG, therefore it shouldn’t surprise anyone it will continue to evolve and likely become a part of the core monitoring we do.
Rip: Whether we are talking about Brexit, Greece potentially defaulting, hard landing/soft landing for the Chinese economy, possible conflict in the Middle East, or another pandemic – there are always global economic and geopolitical issues that impact market valuations and volatility.
I would put the pandemic clearly on the list of issues we need to incorporate regarding our decision-making process.
"There are always global economic and geopolitical issues that impact
market valuations and volatility."
Our experience during March’s meltdown is easily included in our modelling database, thus providing us with updated analysis to aid in the judgements we ultimately make regarding our investment allocations.
So, while the pandemic itself is somewhat new, it’s another item on the list of concerns we need to consider in our investment strategy process.
