Rachel Delhaise, Group Head of Sustainability at Convex Insurance, explains the speciality insurer and reinsurer approach to impact investing and where the investment opportunities lie.
How do you define impact investing and how do you structure/govern it internally?
We are a relatively new insurance company, having started in 2019, but have already grown to quite a reasonable size. I joined as Group Head of Stainability two and a half years ago, and I work closely with our investment team. We decided quite early on make impact investment a key stream of our Sustainability strategy, which we started in earnest about two years ago. Like many insurers our core investments are very conservative; mainly sovereign and corporate bonds. However we decided to allocate a small proportion, but reasonably meaningful amount, to impact investments, identified as looking to achieve a market return in line with our appetite but also seeking clear environmental or social impact.
This work is led by our in house investment team but working closely with myself as well as others across the firm, often with a rich experience in related fields. It is overseen by our Chief Investment Officer.
We're currently developing this portfolio further and learning along the way as we look at the opportunities available. So far, we've mainly looked at environmental opportunities and have executed on three.
When we first set out our sustainability strategy, we identified the SDGs that we wanted to act on and worked on aligning our impact investment portfolio to those SDGs. They've been useful for thinking about the impact elements.
What were your motivations for going into impact investments?
It's crystal clear to me why, particularly on the environmental side, investors would want to look at impact: there are so many opportunities and there is an urgent need for us to help the world in its decarbonisation efforts.
So, the confluence of those two trends makes it a very exciting time to be looking at what some companies are doing. Whilst impact investments are a small part of our broader portfolio, its material the catalytic impact this can have on the financial ecosystem, around the respective aspects of transition...
We have had less focus on social impact opportunities thus far, partly due to the limited resource we have available but we'd hope to include suitable social ones in the portfolio in future.
Last but not least, its useful context that the developing climate and sustainability standards ask companies to disclose not only risk impacts but also how they make the most of climate related opportunities. This is quite a helpful driver in my view.
Have you seen a change in the last few years, in the market more broadly in terms of how investors are approaching impact investing?
Definitely – 10 or 15 years ago, impact investing was more linked to corporate social responsibility and almost seen as a proxy for charitable engagements. That is clearly no longer the case. Look at the numbers in the Glasgow Financial Alliance for Net-Zero (GFANZ), this is real money committed to moving to a low carbon economy, some of which will be dedicated to impact investment as well as broader transition finance. So, what has happened in the last five years is there has been a sense of urgency to transition, and that will only accelerate.
Where are the opportunities in impact investing?
We have invested in Ocean 14 Capital, a leading growth fund in the blue economy. It invests in companies that are directly involved in sustainable marine solutions such as repurposing seaweed or making alternative fish proteins. That's an area that's exciting, and perhaps still overlooked in transition discussions. There's a lot of businesses looking for these solutions, so although we 'only' invested a small part of our portfolio ($20m), it is still a very impactful investment.
Another investment was in an environmental technology fund investing into green transition and related businesses.
In terms of opportunities going forward, nature-based credits could be very interesting. We know there are many, crucial features of the environment which need protection but this has a cost.For example, coral reefs and seagrass meadows are all needed to mitigate the risks of global warming, but if you can use finance to help monetise that, in the same way that the carbon markets have evolved over the last 20 years, and particularly over the last five years, this could really help make this much needed protection come to life.
We expect this area to grow enormously as nature related risks become increasingly high profile, through the publication of the TNFD (Taskforce for Nature related Financial Disclosures) framework, but also given a key focus of COP 28 around nature-based solutions.
What are the current hurdles in the world of impact investment?
One of the issues I've come across is that a lot of the companies or individuals looking for funding in this space are looking for smaller ticket size investments. Sometimes as low as $10,000 to $100,000 which would be too low (given frictional costs) for many funds as well as insurers. That is not an easy one to solve but it is a really important issue that needs to be addressed, as often terrific, very local and truly sustainable innovation is small scale to start.