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.
Swiss Re Asset Management invests in companies that are well-prepared for future sustainability challenges, by analysing their exposure and ability to manage underlying ESG risks. As part of this, we have been successfully applying a minimum ESG rating threshold of BB to sovereign, supranational and agency bonds for several years (see overview below). Any possible exception to the minimum rating would be driven by ALM considerations.
In 2017, we took an important step forward for our actively managed listed equities and corporate bond portfolios: As part of our active risk management, we switched to ESG benchmarks consisting of better-rated companies from an ESG perspective. Limited leeway for deviations is given, whereby such investments are required to have either a positive ESG trend or provide compensation for the additional underlying ESG risk (see overview below).
Implementing these benchmarks makes economic sense for us, as they provide downside protection while delivering better risk-adjusted returns. We regularly evaluate the performance of our ESG benchmarks against traditional benchmarks. The latest analysis is available on our website. It shows that Swiss Re’s Responsible Investing approach helped to reduce downside risk amidst financial market volatility.
If benchmarks are not applicable, a minimum ESG rating threshold is applied to our mandates, such as the buy-and-maintain corporate bond mandates. 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 below.
At the end of 2020, approximately 35% of our investment portfolio was managed externally, and 98% of those assets were managed by signatories to the Principles for Responsible Investment (PRI).
Another important part of our Responsible Investing strategy is our approach as an active shareholder, which we describe in the “How we engage” section.
For our real estate portfolio, we benchmark our investments against GRESB, an industry-driven organisation transforming the way capital markets assess the ESG performance of real assets.1
1 Due to a change in our investment setup, the 2020 GRESB Assessment does not reflect the portfolio's performance appropriately for 2020.