Climate change does not just create risks, but also presents new opportunities. Developing corresponding products and services is a core part of our Group Sustainability Strategy, 2030 Sustainability Ambitions and Climate Action Plan. With our offerings, we pursue two different but complementary objectives: adapting to the effects of climate change and supporting the transition to a low-carbon economy.
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 can help 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 2019 Sustainability Report.
Opportunities related to transition risks in our re/insurance business
While Swiss Re is active in all types of renewable energy re/insurance, over the years we have become a recognised lead market for offshore wind risks. More than five years ago, Swiss Re Corporate Solutions established a Centre of Competence for Wind Power and through this focused investment, we have built up and refined the technical expertise required to understand and manage these risks. For example, in 2019, we played a key role in several major windfarm projects, including the Parc éolien en mer de St-Nazaire, the first large commerical windfarm project in France. Additionally, we took on the role of lead insurer for a number of large projects in Taiwan – Formosa II and Greater Changhua 1 & 2a. Over the next decade, we expect many new development opportunities to arise, which are likely to create demand for re/insurance protection in numerous lines of business (credit, engineering, property, liability, etc).
You can read about our involvement in some new offshore wind farm projects in our 2019 Sustainability Report.
Opportunities for our investments
We expect to experience, particularly over the longer term, an improved risk/return relationship in our investment portfolio as part of our consistent and broad-based integration of environmental, social and governance (ESG) criteria along the investment process. We address sustainability risks such as climate change to make the portfolio more resilient against financial market shocks. This is of crucial importance as such risk factors are not yet fully reflected in current market valuations.
As part of our adaptation strategy, we consider investment opportunities that enable a low-carbon economy:
Green bond proceeds are used exclusively to finance environmentally sustainable projects that address key areas of concern, including climate change, but also natural resource conservation, biodiversity conservation, and pollution prevention and control. We support the transition towards a low-carbon economy by investing into green bonds following the ICMA Green Bond Principles. As of 31 December 2019, we held USD 1.8 billion of green bonds and are targeting a portfolio of USD 4.0 billion by the end of 2024. We have embraced the opportunity to participate in the impressive average market growth of 54% p.a. since 20141,2.
1 Moody’s, “Sustainable Finance – Global: Green, social and sustainable bond issuance to hit record $400 billion in 2020”, 3 February 2020
2 Moody’s - Green bonds: Key numbers and trends, 2018
For our infrastructure loan mandates, we work with best-in-class managers to gain access to, and provide financing for, renewable energy projects that reflect our risk appetite, generate attractive long-term returns and help build a more sustainable energy supply for the future. Renewables make up approximately 13% of our infrastructure portfolio, whereof 76% are in solar panels and 24% in wind farms.
Our real estate investment portfolio comprises commercial and residential buildings with a total market value of USD 4.7 billion as of 31 December 2019. These are predominantly located in Switzerland, the US, Germany, Australia, the UK, and Central and Eastern Europe. As ESG criteria are considered a key pillar of long-term sustainable value creation, we incorporate them into decision-making throughout the whole operating model, including external investment manager due diligence.
New property investments are evaluated from an ESG perspective, which includes both a property’s current and potential future status as it relates to energy efficiency, public transport connectivity, use of sustainable materials, occupier well-being and community engagement. Ongoing business plan execution and asset management of properties already in the portfolio always incorporate different ways to improve ESG characteristics, as economically and financially sensible.
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 2019, 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. The Swiss portfolio is gradually shifting away from fossil fuels as a heating source to either renewable energy (14%) or district heating (15%). Whenever this is not possible, gas (49%) is considered as an alternative, given its smaller carbon footprint compared to oil (19%).
1 Includes projects under construction, land and non-heated assets.
The externally managed real estate portfolio is predominantly invested in Australia, the UK and the US, and contains 47% green buildings based on regional energy labels. The Australian portfolio is the most advanced, followed by the UK portfolio.
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, as well as the LEED certification of the US Green Building Council (USGBC).
2019 was the third year in a row that the US portfolio achieved four out of five stars in GRESB. The 2019 GRESB score increased by 4 points (+5%) to 82.