March 4, 2024

Despite the backlash against environmental, social and governance (ESG) investing in the US and elsewhere, financing of ESG investments, funds and strategies continues at a rapid pace, and for investors, ESG remains a key driver of allocations.

Sustainable Investing-CAT-Bonds-IL-ESGThat’s according to recent insights from Preqin, who noted that between 2020 and 2022, capital raised by ESG investing tripled annually, from $29 billion to $92 billion.

Europe still appears to be the most ESG-focused investor group, with around three-quarters (79%) of total capital raised going to European ESG funds, followed by North America at 14% and Asia Pacific at 7%.

As ESG financing accelerates, the average size of ESG funds has also increased, from $400 million in 2017 to nearly $600 million in 2022.

Whether ESG can help drive long-term returns remains a matter of debate, Preqin noted.

But what does not seem to be in dispute is investor interest in investments with ESG qualities, so it is clear how ESG affects trading and investing.

A November 2022 survey by Preqin found that 29% of investors said they had rejected a deal due to ESG concerns, while another 43% said they would.

Preqin’s survey found that 60% of investors surveyed believe ESG is of medium or higher importance in their investment decisions.

In fact, 13% of investors said ESG was extremely important as an investment consideration, and 26% said it was quite important.

As always, most ESG investing is concentrated in niche markets such as private equity, infrastructure, and impact or climate investing.

In fact, Preqin’s report did not mention insurance-linked securities (ILS), but the ILS market continues to drive the ESG agenda, as do insurance and reinsurance cedents.

In fact, we’re seeing far more ESG disclosures in cat bond issuance dossiers in 2023 than last year. They’re still not actually covered, but they’re more common, especially from the big global insurance and reinsurers sponsoring cat bonds.

We have also heard that some investors have turned down certain catastrophe bond opportunities due to lack of ESG alignment or disclosure, which could be an issue for any major institution with an ESG mandate in its investment strategy, which could also will promote greater development. Timely use of ESG disclosures in the ILS market.

As ESG investment financing continues to advance at a rapid pace, the ILS market will likely continue to seek to satisfy investor interest in ESG-appropriate asset classes, as they perceive natural disaster risk and disaster protection to remain highly aligned with many ESG objectives.

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