ESG integration delivers returns with lower volatility

Channels: SAA/ALM, Managers, Risk, Governance

Companies: Swiss Re

People: Pascal Zbinden

Integrating environmental, social and governance (ESG) factors into the investment process can significantly lower volatility without sacrificing the desired returns, leading to a better overall result for long-term investors such as insurers, said Pascal Zbinden, co-head of SAA & market at Swiss Re.

Speaking ahead of his appearance on the final panel session at Insurance Asset Risk EMEA 2019, Zbinden explained the Swiss reinsurers decision to apply ESG-based benchmarks across its $130bn portfolio in 2017 was paying off.

“ESG best in class benchmarks provide returns comparable to broader benchmarks, but the volatility is significantly lower," he said.

The benchmarks, which are applied to the firm’s equity and credit portfolios, enable Zbinden and his investment colleagues to assess companies based on ESG criteria such as carbon emissions alongside their financials.

The benchmarks were built on external data sources to assign a score to each company and then supplemented with primary research by Swiss Re to assess whether its inclusion would deliver the same or better returns.

Zbinden explained this had demonstrated a strong economic case to integrate ESG across the portfolios as it doesn’t hinder investment performances.

“There’s a perception that it’s about either focusing on investment returns or ESG integration, but I think both do not contradict each other, particularly if you look at risk-adjusted returns," he said.

Zbinden will discuss these topics as well as impact investing and exposure to the coal sector at the Insurance Asset Risk EMEA 2019 conference in London on 12 June.

The one day event will also showcase investment leaders discussing investment strategy in the context of emerging risk, expectations for the Solvency II 2020 review, opportunities of private markets in late cycle investing, and the influence of credit rating agencies.

Adam Leach