2021 ESG Annual Report

What are your thoughts on integrating ESG factors into the strategic asset allocation (SAA) process? James Millard: Incorporating ESG characteristics into Capital Market Assumptions appears to have relatively limited impact. If it simply punishes asset classes such as emerging markets, where companies are often behind on emissions reduction, it can lead us back to disinvestment as opposed to engaging to maximize real-world impact. An asset allocation strategy that is more forward-looking with respect to ESG, such as optimizing to Climate VaR or net-zero alignment, is conceptually more appealing, but can come with issues of methodology, consistency and coverage. Given the challenges of the approaches on offer, this is an area that needs continued investigation. Could you briefly describe what you look for on ESG from asset managers? James Millard: Over 99% of our AUM is with managers signed up to the PRI, and Hiscox itself signed up in 2021. We embed ESG consideration in our manager selection and regular monitoring processes, and we expect all our managers to adhere to our Responsible Investment Policy. We look for a strong ESG investment philosophy, relevant and robust processes, and of course appropriate resources to actually implement ESG considerations on our behalf. We want managers to incorporate their own analysis of ESG risks and

opportunities at issuer and portfolio level, and to evidence the added value of their engagement in client portfolio-level reporting in line with the latest ESG reporting standards. What are the next big ESG-related projects for you, as Hiscox’s CIO? James Millard: Important developments across the Group during 2021 included: the implementation of our ESG exclusions policy; becoming signatories of both the PRI and the Principles for Sustainable Insurance (PSI); contributing to key industry taskforces via the Sustainable Markets Initiative and ClimateWise (where I sit on the Council); setting new Group-level SBTi- aligned GHG reduction targets; and establishing a Sustainability Steering Committee, which is led by our Group CEO. Looking forward for investments, alongside preparing the new reporting required by the PRI, we’ll also be embedding our new SBTi GHG targets into our segregated mandates as we continue to work with our managers to ensure progress against those targets. We will also further investigate embedding climate risk, in particular, into our asset allocation processes. Beyond asset management, 2022 will see us looking to embed a sustainable underwriting strategy across each of our business areas.

Hiscox spoke with Neuberger Berman in London on February 22, 2022.


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