Zurich switches USD1bn to new ESG index
Zurich UK has switched almost USD1 billion of its investment portfolio into a new ESG benchmark as it continues to take action to curb carbon emissions.
The benchmark, known as the MSCI USA ESG Universal Sector Neutral Select Capped Index (the Index), delivers a 30 per cent cut in carbon emissions of its constituents and enhanced environmental, social and governance (ESG) outcomes when compared to its parent index, the MSCI USA Index.
Zurich, investment manager DWS and MSCI, worked together on the Index, developed by MSCI, which assigns 629 companies an ESG score based on MSCI’s ESG Ratings methodology. The Index will be managed, calculated, and distributed by MSCI, the world’s largest provider of ESG indexes.
The Index includes companies based on MSCI’s ESG metrics. The scores are combined with a company’s market capitalisation, allocating a higher index weighting to those companies with a good and improving ESG profile. Unlike some ESG indices, the Index is ‘sector neutral’ meaning that high carbon emitting industries have the same overall weighting in the Index, but different allocations are made at the individual company level.
Zurich manages GBP25 billion of pension and life insurance assets on behalf of its customers, invested across equities, bonds and property. The insurer plans to switch almost USD1 billion of its passive US equity mandates into a fund managed by DWS that tracks the new index and applies a further screen excluding companies that do not meet Zurich’s ESG policy. Zurich’s analysis shows that for every USD1 million invested in the Fund, exposure to financed carbon* emissions drops from 58 tonnes to 41 tonnes without adversely impacting the expected returns or increasing risk.
David Thompson, Zurich UK’s Chief Investment Officer, says: “Climate change is one of the most pressing issues of our time. By reducing the financed carbon emissions from our portfolio and continuing to engage with companies, we aim to play our part in financing a more sustainable future. Weighting our investments towards companies that score highly on ESG principles can deliver both superior risk-adjusted returns for customers and more sustainable outcomes.”
Mark Guirey, Head of EMEA Insurance Clients at MSCI, adds: “2021 will be a critical year for climate action as we head toward the UN (COP26) conference in November. With a growing interest and need for solutions in this space, we were pleased to develop this index. MSCI ESG Indexes are designed to provide institutional investors with effective and transparent tools to integrate ESG and Climate considerations in their investment portfolios and align their benchmarks with their objectives.”
Peter McGloughlin, Head of Insurance UK & Ireland at DWS, adds: “We were delighted to work with Zurich and MSCI on this new ESG low carbon index project. Our ESG Advisory team was able to provide some real insight on our own experiences in creating tailored ESG and climate solutions that reflect investor’s objectives and the issues Zurich needed to consider. DWS is fully committed to ESG and as member of the Institutional Investors Group on Climate Change (IIGCC) we are delighted to support asset owners in the UK life and pensions market who can make a real difference to customer investment outcomes and climate footprint”.
Zurich confirmed that the overall investment management charges for customers investing in the Fund would remain unchanged.
Zurich Group became the first insurer to sign the Business Ambition for 1.5C Pledge to limit global warming. As a founding member of the UN Net-Zero Asset Owner Alliance, Zurich in 2019 committed to holding a net-zero investment portfolio by 2050. By 2025, the Group aims to reduce the intensity of emissions of listed equity and corporate bond investments by 25 per cent.