Constantly observing the latest developments.

As part of our portfolio risk management, we regularly review portfolio statistics including the expected loss by peril and region, the impact of historical natural catastrophes on the current portfolio, and various stochastic scenarios.
Those reviews are based on dedicated state-of-the-art reinsurance risk modelling data.

We apply the latest technologies and tools to assess and quantify climate-related risks.

As part of investment analysis, HSZ Group carries out Environmental, Social, and Governance (ESG) analysis alongside traditional financial analysis. Compliance with ESG in substance has always been an important criterion to test for “inner strength” in our investment process.

Predating standard ESG frameworks, our core capabilities have centered around assessing ESG risks and opportunities and their financial materiality. We believe that embedding the factors of ESG into our entire investment decision-making and management processes can enhance the steady return on the investment we make and provide the driving force for the sustainable development of the environment and society.

We have been a signatory of the Principles for Responsible Investment (PRI) since 2020. We will disclose our general approach to responsible investment through the PRI reporting framework. Relevant information is available on the PRI’s website.

Based on the decision of our Board of Directors, we became a signatory of the PRI on February 19, 2020, and committed to act in the best long-term interests of our beneficiaries. We believe that ESG issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes, and time). We also recognize that applying these principles may better align investors with broader objectives of society. Therefore, we committed to the following:

• To incorporate ESG into investment analysis and decision-making processes.
• To be an active owner and incorporate ESG into our ownership policies and practices.
• To seek appropriate disclosure on ESG by the entities in which we invest.
• To promote acceptance and implementation of the principles within the investment industry
• To work with the PRI Secretariat and other signatories to enhance their effectiveness in implementing the principles.
• To report on our activities and progress towards implementing the principles.

Our management promotes and supervises the implementation of responsible investment across the entire organization. Furthermore, the management supervises the inclusion of climate-related risks in any applicable investment cases by the analyst team and the dedicated ESG analyst.

We hold meetings from time to time regarding ESG of relevant investments including climate change, pollutant emissions, human capital management, occupational health and safety, ownership and control, litigation status, etc. and ensure that all the investment and risk management processes of our investment cases before and after investment are reviewed and tracked.

For example, when implementing investment and risk management related to climate change, we will conduct pre-investment and post-investment reviews and tracking according to whether climate change is a material topic for relevant investment activities. Climate change is one of the priority issues for us to consider when it makes investments in products related to equity investments and catastrophe bonds (i.e., some sectors with high climate change vulnerability). Relevant investment and risk management will be strictly implemented. 

Our management engages in constructive dialogue with dedicated personnel on different investment cases, and reviews and evaluates the performance and management progress in climate-related risks. Our management recognizes that creating long-term value for our shareholders requires the consideration of ESG including climate change vulnerability.

The management has ultimate responsibility for oversight of our activities for ESG together with climate-related risk management. Our dedicated personnel assist the management in overseeing climate-related risk assessment and management activities.

ESG is included as a section in our internal research material before investments are made. The information is used by the management to judge the financial and ESG status and progress of investments. Our dedicated personnel provide a qualitative opinion on the investment case’s ESG risks (e.g., climate-related risks) including related controversies. Climate change vulnerability is therefore considered an additional factor in determining the long-term opportunities and risks of a potential investment if it is applicable to the investment case.

We have staff dedicated to ESG analysis. Our investment process is structured to identify ESG risks and opportunities alongside traditional measures within our active investment strategies. In addition, our analyst team collaborates with each other with their professional knowledge and experience from both financial and ESG perspectives during investment research, which is the basis for investment decision-making.

We emphasize the management of conventional risks and emerging risks, such as climate-related risks of our investment cases, in which our management is the highest-level supervisory unit for implementing risk management and internal control and continues to strengthen the management mechanisms for business continuity.

To facilitate our society becoming more competitive and develop towards a green economy in an orderly manner, we invest in companies and industries that support the creation of low carbon transformation opportunities or facilitate the adaptation to climate change through products and services. For example, in equity investment, we utilize our position as an investor to influence and engage with investee companies, so that companies will take actions in response to tackle climate change and strengthen their climate resilience in their business operation.

We identify relevant and material physical and transition climate-related risks for each investment strategy and fund we manage.

The products managed by us invest specifically in instruments related to the occurrence of natural catastrophe events. Most investments are therefore impacted by climate risk.

Where relevant, factor the material climate-related risks into the investment management process. For example, we include climate-related risks in the investment philosophy and investment strategies and incorporate climate-related data into the research and analysis process.

Climate risk management is at the core of our investment process. The analysis of ILS investments focuses on the insurance coverage underlying the instrument. We check the insured business sectors (e.g., residential, commercial, industrial, automotive, or specialist insurance) and the geography covered by the contract. We also check the type of events covered (e.g., earthquake, tropical cyclone, storm, forest fire, severe thunderstorm, hail, flood, volcanic eruption, meteorite impact, life, mortality, etc.). The analysis includes checks on the insurer’s organization, reputation, underwriting standards, and claims management track record. To quantify the risk, we rely on state-of-the-art stochastic reinsurance modelling systems. These systems allow for managing the risk of loss and evaluating if the insurance risk premium properly compensates investors for that risk. 

We also take reasonable steps to assess the impact of these risks on the performance of underlying investments.

We invest in instruments where the economic interests of investors in relation to natural disaster risks are fully aligned with the goals of reducing the negative effects of climate change. We make investments in the insurance sector, which has the lowest carbon intensity footprint of any industry. We focus on peak perils (e.g., earthquakes and windstorms) and try to avoid secondary perils which are more impacted by climate change (e.g., wildfire, flood, severe thunderstorms, tornadoes, hail). In terms of portfolio management, we diversify across multiple regions and perils, which are independent of each other.

Our ILS Funds include ILS Diversified Ltd. and Maneki UCITS CAT Bond Fund.

We establish our Responsible Investment Policy (Equity Portfolio) and Policy Regarding Management and Disclosure of Climate-Related Risks in 2021 and 2022 respectively and integrated them with our Internal Investment Guidelines to enhance our ESG and climate-related risk management abilities. We integrated climate-related risk management with our existing risk management framework, provided that the risk is highly material to the investment. We continue to strengthen the management of climate-related risks associated with our investment and related products.

We are actively monitoring our own greenhouse gas emission recognizing that climate change is increasingly becoming an influential risk factor to companies’ long-term growth and profitability. Due to the nature of our business, our greenhouse gas emission is primarily related to the utility consumption, travel, and other distribution or administrative expenses. Relevant greenhouse emission data is carefully monitored and documented.

As part of our portfolio risk management, we regularly review portfolio statistics including the expected loss by peril and region, the impact of historical natural catastrophes on the current portfolio, and various stochastic scenarios. Those reviews are based on dedicated state-of-the-art reinsurance risk modelling data.       

We apply appropriate tools and metrics to assess and quantify climate-related risks.

Transparency Across HSZ Group’s Investments 

As of Year End % or in tCO2eq/USD Million