Wealth giants taking ESG seriously when investing

Wealth giants taking ESG seriously when investing

Insurers that do not take their environmental, social and governance responsibilities seriously enough when it comes to their investment strategy may find the risks stack up against them, according to Pascal Zbinden.

The co-head of strategic asset allocation and markets for Swiss Re said insurers need to calibrate their portfolios towards companies with a better ESG profile in order to be sustainable and lower risk.

Mr Zbinden (pictured) said it was important for investors, shareholders, clients and partners that their insurer has thought carefully about how it has allocated money within its portfolios in line with policies on climate change and ESG factors. 

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He said: “We signed up to the Principles for Responsible Investment in 2007 and ESG factors are important from an investor’s point of view. 

“If you compare, for example, US-investment grade credit bonds against a subset of companies with a better ESG profile, you will see that, over the long-term, not only is the return on investment comparable, but the risk around that return - the volatility - is lower.

“This means for an investor, companies with a better ESG profile have a lower risk profile and more sustainability of returns.”

Moreover, he warned the transition risks are higher for companies which are carbon-intensive, given the political shift in recent years towards rewarding those corporates which are committed to carbon neutrality, while those whose main revenue comes from finite resources, such as fossil fuels, may no longer be able to operate.

Therefore, Mr Zbinden said Swiss Re had divested companies with a high exposure to coal back in 2016, as the team felt the transition risks were too high.

Mr Zbinden added: “We get a better investment portfolio and a lower-risk one, which translates to our own shareholders and stakeholders in terms of our own stability. Shareholders want to select the companies that support a sustainable future, and clients and other stakeholders want to know the insurer will still be there in the future to do business with and pay claims.”

Last week, Swiss bank Pictet vowed to scrap exposure to fossil fuel from its balance sheet, to the tune of CHF250m (£277.4m) by the end of the year.

Patrick Brusnahan, private banker international editor for GlobalData, said: "This is a bold move from a large player. While private banking and wealth management can often be seen as reactionary, this is a forward-thinking position. However, other players will not be so keen to remove hundreds of millions from their balances.

"The way forward is to make sure that ESG and impact investing is made more appealing, and more profitable, to high-net-worth and ultra-high-net-worth customers. When that is in place, more institutions are set to follow this lead."

This came after Connecticut-based insurer The Hartford became the latest US insurance house to announce a move away from reinsuring and insuring fossil fuel companies, as well as pledging to reduce investments towards these industries within its portfolios.