Climate change does not just create risks, it also presents companies with new opportunities. Developing such products and services has long formed one of the four pillars of our climate strategy. With these offerings we pursue two different but complementary objectives: mitigation of climate change and adaptation to some of its effects.
Opportunities related to physical risks in our re/insurance business
Since most of our re/insurance contracts are renewed on an annual basis, we can offer our clients effective natural catastrophe protection that helps them cope with current climate risks. The same applies to our weather insurance solutions.
In addition, we undertake special efforts to help expand re/insurance protection, by focusing on non-traditional clients (in particular from the public sector), underdeveloped markets and innovative risk transfer instruments. You can read about some innovative transactions we have recently completed in our 2018 Corporate Responsibility Report.
Opportunities related to transition risks in our re/insurance business
While Swiss Re is active in all types of renewable energy re/insurance, we have recently become recognised as a lead market for offshore wind risks. Swiss Re Corporate Solutions has continuously built up and refined the technical expertise required to understand and manage these risks and, in 2015, opened a Centre of Competence for Wind Power in Copenhagen. Over the next decade, we expect many new development opportunities to arise, which will create demand for re/insurance protection in numerous business lines (credit, engineering, property, liability, etc).
You can read about our involvement in some new offshore wind farm projects as well as a pioneering solar revenue put in our 2018 Corporate Responsibility Report.
Opportunities for our investments
The consistent and broad-based integration of environmental, social and governance (ESG) factors in the investment process is expected to improve the risk/return relationship particularly over the longer term. We consider sustainability risks, such as climate change, in our investment process to make the portfolio more resilient against financial market shocks. This is all the more important as such risk factors are not yet considered as fully reflected in current market valuations.
The transition to a low-carbon economy also creates opportunities for specific asset classes:
Green bond proceeds are used to exclusively finance environmentally sustainable projects that address key areas of concern including climate change, but also natural resources depletion, loss of biodiversity and/or pollution control. With the movement towards a low-carbon economy, the green bond market saw an impressive increase from about USD 11 billion in 2013 to USD 167 billion in 20182. Currently, the market shows an annual growth rate of more than 70%, with a growing variety of issuers besides supranationals, sovereigns and agencies (SSA). In 2018, we achieved our target of having a green bond portfolio worth at least USD 1.5 billion.
For our infrastructure loan mandates, we work with best-in-class managers to gain access to and invest in renewable energy projects that reflect our risk appetite, provide attractive long-term returns and help build a more sustainable energy supply for the future. Renewables make up approximately 20% of our infrastructure portfolio, whereof 65% are in solar panels and 35% in wind farms.
For investment real estate in Switzerland, we apply the following sustainability criteria: analysis of energy sources as a percentage of market value and MINERGIE® certifications. MINERGIE® is a Swiss sustainability label for new and refurbished buildings. By the end of 2018, the combined value of our MINERGIE®-certified buildings reached USD 0.4 billion, or 23% of our Swiss portfolio of direct real estate investments by value, which corresponds to a gross floor area of 82 497 m2.
In the US, our approach to sustainability includes some of the most recognised certificates and guidelines, such as “GreenGuide: Sustainable Property Operations”, a best-practice guideline for sustainable and efficient real estate operations; and the LEED certification of the US Green Building Council (USGBC).
2 "The Green Bond Chartbook", UniCredit, 1 February 2019.