Enhancement refers to the systematic integration of ESG criteria along the entire investment process, from the Strategic Asset Allocation (SAA) to monitoring and reporting. Today, close to 100% of our SAA considers ESG aspects.

With a share of 42% of total assets under management at the end of 2019, government bonds (incl. agency) constitute the largest holding within our investment portfolio. We have been successfully applying a minimum ESG rating threshold of BB for investments within this relevant asset class for several years (see overview in Our Responsible Investing strategy). Any potential exception to the minimum rating would be driven by ALM considerations.

As part of our active risk management, we announced in 2017 that we had switched to ESG benchmarks consisting of better-rated companies from an ESG perspective for our actively managed listed equities and corporate credit portfolios. Limited leeway for deviations is given, whereby such investments are required to have either a positive ESG trend or provide compensation for the underlying ESG risk (see overview in Our Responsible Investing strategy). The implementation of these benchmarks allows us to have both the right measurement and appropriate incentives for our portfolio managers in place. If benchmarks are not applicable, a minimum ESG rating threshold is applied to our mandates.

ESG rating distribution across our corporate credit and listed equities portfolio in %
ESG ratings distribution across our corporate credit and listed equities portfolio in % (bar chart)

At the end of 2019, approximately 45% of our investment portfolio was managed externally, and more than 98% of those assets were managed by signatories to the Principles for Responsible Investment. We work closely with our external managers to ensure they consider ESG and climate-related aspects in their investment processes. Before external managers are appointed, we perform thorough due diligence on them to confirm their compliance with our responsible investing principles. This includes a review of the managers’ ESG considerations in their investment decisions and monitoring, as well as of their commitment to responsible investing. After they have been mandated, the managers’ individual performances are monitored in line with the Swiss Re Responsible Investing Policy and measured against ESG-related benchmarks. The managers are required to report regularly on their responsible investment activities.

By consistently applying these prerequisites, we were able to further improve the ESG profile of our portfolio throughout the year, as shown in the graph on the left.

In recognition of our stringent Responsible Investing strategy, in 2019 we were selected to the PRI Leaders’ Group on asset owners’ selection, appointment and monitoring of external managers in listed equity and/or private equity.

For our real estate portfolio, we focus on certified buildings, such as the MINERGIE® standard in Switzerland, or the world-wide known Leadership in Energy and Environmental Design certification. By the end of 2019, the value of our MINERGIE®-certified buildings reached USD 0.4 billion or 23% of our Swiss portfolio.

Furthermore, through our externally managed portfolio we predominantly invest in the Australian, UK and US real estate markets, reaching a total size of USD 2.1 billion by the end of 2019.

Swiss real estate portfolio
Swiss real estate portfolio (pie chart)
GRESB Score Development
GRESB Score Development (bar chart)

In the US, the investment managers’ approach to sustainability includes the “GreenGuide: Sustainable Property Operations”, a best-practice guideline for sustainable and efficient real-estate operations; ULI GreenPrint Foundation, a global environmental management platform; and the LEED certification from the U.S. Green Building Council. We also benchmark the portfolio against GRESB, an industry-driven organisation transforming the way capital markets assess the ESG performance of real assets. It outperformed the GRESB average of 72/100 with a score of 82/100.

In Australia and the UK, the investment managers’ approach to sustainability includes the National Australian Built Environment Rating System rating scheme and the BREEAM certification framework, respectively.