Climate action in investments

father and daughter in front of a windmill

Climate action in investments

We are committed to transitioning our own investment portfolios to net-zero by 2050.

How we deal with climate change

Every business and asset will be affected by climate change and collective action is needed to mitigate or adapt to it. This will be the case even if society successfully transitions toward a low carbon economy, and reaches the 1.5°C target in line with the Paris agreement. However, our analysis suggests that these targets are likely to be missed and that more action is clearly necessary. As an insurance provider, we are already witnessing challenges associated with climate change affecting our customers across the globe. As an insurer and investor, we have a direct interest in sustainable global economic growth and in supporting communities to become more resilient to environmental and social challenges. Therefore, we are committed to transitioning our own investment portfolios to net-zero greenhouse gas emissions by 2050.

The impacts of climate change run through all the elements of our responsible investment strategy. How can we make sure that a proper assessment of risks and opportunities is reflected in investment decisions? How can we help finance measures to mitigate and adapt to climate change? How can we deal with the fact that many consequences of climate change will only materialize over a medium- to long-term time horizon? And how can we help to encourage changes that better enable financial markets to effectively deal with climate change, and approach it as both a risk and an opportunity?

How do we think about climate risk

A journey towards net-zero emissions by 2050 requires us to consider climate-related risks and impacts to our portfolio. For this purpose, we conduct scenario-based climate risk analysis using an integrated modelling approach for our portfolio to ensure that climate-related risks and impacts are monitored and that adequate responsive measures are taken.

Read more on Zurich sees potential impact of climate change policies on the economy

Assessing portfolio climate risks

An integrated modeling approach is adopted for the analysis of our proprietary investment portfolios to ensure, as much as possible, the consistent use of assumptions. To quantify impacts on Group assets, the model analyses the exposures of businesses and industries to physical and transition risk. To provide a map of vulnerabilities, it uses asset-level data on relevant risk drivers, including carbon emissions, abatement options, exposure to physical risks (including location-based exposure to acute physical risks), exposure to the greening of the economy, dependency on fossil fuels and competitiveness. The approach provides a coherent framework for analyzing climate change-related risk at the industry and corporate sector level.

Zurich has committed to transitioning its investment portfolios to net-zero greenhouse gas emissions by 2050.

We are committed to action in eight areas

Net-zero portfolios by 2050:

We have pledged to transition our investment portfolios to net-zero GHG emissions by 2050 consistent with a maximum temperature rise of 1.5°C above pre-industrial temperatures taking into account the best available scientific knowledge. In line with Paris Agreement article 4.9, we are setting intermediate five-year targets for the asset classes where there is a methodology available.

Scenarios:

It is hard to take action without context. Scenario-based climate risk analysis is conducted using an integrated modelling approach for our portfolio to ensure that climate-related risks and impacts are monitored and that adequate responsive measures are taken. Zurich has developed and is regularly updating a climate scorecard to enable monitoring of global climate-related developments.

Strengthen ESG integration:

Given its complexity and long-term nature, climate change represents a particular challenge for ESG integration. Additional data and tools are required to raise awareness among investment professionals and to support integration in investment strategies.

Benchmarks:

ESG integration practices might fail to effectively capture all climate change-related risks and opportunities. We are testing the use of special benchmarks that incorporate a climate risk assessment and will evaluate the application of such benchmarks for new and existing portfolios on a case-by-case basis.

Finance the transition to a low carbon economy:

As part of our ongoing commitment to impact investing and our target to help avoid the emission of five million metric tons of CO2e per year, we will evaluate green investments across different asset classes on an ongoing basis.

Drive change through advocacy:

Public and private sectors need to take decisive action. Zurich has defined clear positions on topics such as transparent risk disclosure, carbon pricing, etc.

Engagement:

As part of engaging with the companies in which we invest, climate change is being reflected on the agenda and considered in voting practices.

Selective exclusions:

Recognizing the particularly harmful impact of fossil fuels on climate, Zurich has developed a Group approach on selectively excluding companies related to the mining of or electricity generation from thermal coal, oil sands and oil shale from its underwriting and investing activities, where permissible by law or regulation. Furthermore, Zurich has implemented positions for its investment and underwriting portfolios to restrict support of new fossil fuel developments.

More information on our positions can be found on our website under sustainability risk.

Journey towards net-zero 2050

Zurich has committed to transitioning its investment portfolios to net-zero greenhouse gas emissions by 2050 consistent with a maximum temperature rise of 1.5°C above pre-industrial temperatures taking into account the best available scientific knowledge including the findings of the International Panel of Climate Change (IPCC), and regularly reporting on progress, including establishing intermediate targets every five years in line with the Paris Agreement Article 4.9.

Climate change represents a major source of systemic risk in the financial system and to investors. Investors endeavoring to manage those risks and have a positive impact on their portfolio companies – whose activities are directly contributing to the economy and therefore having an effect on global emissions (‘real economy emissions’) – can make use of different means to influence their investee companies. Two of the most influential levers include:

Active ownership (including proxy voting and company engagements) which lays the foundation for companies to embrace more climate friendly practices, by declaring interest in and urging companies to meaningfully decrease their emissions and;
Providing enabling capital (climate solutions investments): climate solutions offer essential technologies and systems that enable companies to transition effectively, aligning with decarbonization objectives by providing practical methods to reduce emissions.

A thirty-year journey must start with first steps. Accordingly, we have set interim targets for engagements, climate solutions investments and emission reductions in a variety of asset classes, which will be broadened as suitable methodologies become available.

2030 interim climate targets

Zurich strongly believes that simply divesting from companies with carbon-intense footprints is less effective than engaging with them to drive the shift to sustainable practices. Many of these companies have the knowledge and engineering capabilities required to make a green transition and harnessing this can benefit sustainability goals. Zurich will:

engage with 20 high-emitting investee companies that have not set science-based targets, require these companies to set targets aligned with the Paris Agreement, and collaborate with asset managers in highlighting best practice for climate-conscious active ownership and work together for a just transition.
collaborate with asset managers in highlighting best practice for climate-conscious active ownership and work together for a just transition.
keep advocating for, and engaging on, industry action, as well as public policies, for a low-carbon transition of economic sectors in line with science and under consideration of associated social impacts.

On the bilateral engagement, we focus on engaging with emission-intensive companies, among others operating in the oil and gas sector, on the need to set science-based emissions targets. Should engagement fail and companies refuse to set targets after due dialogue, Zurich will vote against board members at shareholder meetings and where relevant, as a last resort, will divest.

As a large asset owners, Zurich will leverage its investments to help mitigate climate change. Our investment strategy aims to benefit society and the environment through, for example, impact investing. We mitigate environmental risks by supporting a climate neutral economy and increasing community resilience.

Zurich’s targets for financing climate solutions enhance our existing long-term commitment to provide green financing solutions under our impact investing strategy announced in 2017. We will:

grow investments in Climate Solutions to 6% of total Group Investment Assets
avoid 5 million metric tons of CO2-equivalent emissions per year through impact investments, and
contribute to a market environment that enables a growing pipeline of climate solution investments suitable to institutional investors, based on the experience from building a multi asset class impact portfolio over the years.

As an investor, we put our own capital to work to help scale climate solutions investments. We invest in a range of climate solutions investments across different asset classes, including:

Green bonds: green bonds enable capital-raising and investment for projects with environmental benefits. These may include renewable energy, energy efficiency, biodiversity conservation, pollution prevention and control, and others. As one of the largest private sector investors, Zurich invests in green bonds that follow the Green Bond Principles.
Private equity funds: Zurich invests in Impact Private Equity funds that support a zero-carbon economy and encourage environmentally friendly technologies to help mitigate environmental risks.
Impact Infrastructure Private Debt: we finance clean energy infrastructure and energy efficiency projects to transition to a zero-carbon economy, as part of our direct private debt lending portfolio.
Real Estate: As a leading sustainable real estate investor we are transitioning our global real estate investments towards net-zero greenhouse gas emissions by 2050. This includes developing and investing in certified green buildings.

Zurich’s 2030 emission reduction targets cover both listed equity and corporate bond investments as well as direct real estate investments. Zurich aims to:

reduce the intensity of emissions of listed equity and corporate bond investments by 55% (metric tons CO2-equivalent per USD million invested), and
reduce the intensity of emissions of direct real estate investments by 45% (kilograms CO2-equivalent per square meter).

All targets are set against a 2019 baseline, based on latest available emissions for December, 2019. Target year is Financial Year end 2029.

Zurich will continue to take a leading role in the development of CO2-reduction methodologies and initiatives for other asset classes, such as sovereign debt and private asset classes.

Emission intensity for investments portfolios

Zurich defines the emissions intensity of an issuer as metric tons of CO2-equivalent greenhouse gases emitted (under scope 1 and scope 2 of GHG protocol) per USD millions of capital deployed, aligned with the Asset Owner Alliance target setting protocol. For non-financial companies, capital is defined as enterprise value, and for financial companies, market capitalization is used as a proxy. This is multiplied by Zurich’s outstanding investment amount of that issuer. To derive portfolio level intensity, we use the simple mathematical average of total portfolio carbon-equivalent footprint per million USD in portfolio market value.

Zurich mitigates climate change risk with the ongoing implementation of its climate change investment strategy. It encompasses measures from scenario planning and ESG integration, to implementing selective exclusion screens and engaging with both companies and policymakers, while making progress on a net-zero emissions balance sheet by 2050.

Please find our progress report and detailed methodology in the metric and target section in the sustainability report of the Annual Report 2023.

Supportive policies

Coal, oil sands and oil shale

While we have a strong preference for ESG integration and engagement, there are certain areas where we believe strict exclusions for certain activities are justified. We stand by our position on thermal coal, oil sands and oil shale, established in 2017. A description of our current position can be found here, stating that Zurich generally will no longer underwrite or invest in companies that operate above our defined thresholds.

In accordance with the thermal coal, oil sands and oil shale policy, all initial engagements were concluded by midyear 2021. All companies covered by the thresholds have either been cleared, excluded or are under continued engagement depending on whether they presented credible transition plans. Progress on these targets is monitored and can be revoked if companies fail to meet their transition targets.

For those companies that neither had science-based targets to decarbonize nor a credible plan for a transition from thermal coal, oil sands or oil shale, we have stopped writing new business, initiated the transition to an alternative insurer, divested from equity holdings, stopped investing in new debt and let existing holdings run-off.

Furthermore, we will only consider new clients or investee companies that are already below those limits or have near-term commitments in place to bring them below the limits.

In line with our overarching net-zero targets for our insurance and investment portfolios, our performance management focus will move from individual sector exclusions to tracking our overall portfolio decarbonization and engagement targets.

Oil & Gas

For Zurich’s investments in private debt¹, we have dedicated fossil fuel guidelines agreed with our asset managers. In line with the group wide guidelines, Zurich excludes any thermal coal related assets in these portfolios. Further, these portfolios will not finance oil and gas assets which are not aligned with science-based or government-issued regional/national 1.5°C pathways.

¹ Excluding CLOs and Real Estate

Zurich’s fossil fuel guidelines for private debt investments

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Climate action KPIs

Climate action charts KPI 2025

Planet

Pioneering circularity; Zurich invests in NG Group for the journey to a world with no waste
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Planet

Zurich has invested in a highly sustainable building in the Dutch affordable housing sector on behalf of its German life business.

Photo credit: © KondorWessels Vastgoed
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Planet

Zurich supports the decommissioning of the last two remaining coal power plants in New Jersey
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Planet

Pioneering circularity; Zurich invests in NG Group for the journey to a world with no waste

As a responsible investor, Zurich uses capital markets to fund solutions to many of the pressing social or environmental issues of our time. Zurich is committed to reduce the carbon intensity of its investment portfolios to net-zero by 2050. We also set intermediate targets for 2025 for listed equity, corporate bond and direct real estate investments. Furthermore, Zurich invests in various climate solutions via impact investment assets around the globe.

Through its private equity investments, Zurich directs its resources to generate positive impact. We follow the Global Impact Investment Network definition of impact investing as investment opportunities that allow us to intentionally target a specific positive social or environmental impact and allow us to measure the impact achieved. These investments target to generate a market-rate financial return commensurate with their risk.

Private equity as an asset class is particularly suited to impact investing. The companies receiving capital from private equity investors usually tend to be small and agile and more easily evaluated against impact objectives. Zurich typically invests in private equity, including impact investments, through fund investments. An in-house specialist team is responsible for selecting private equity fund managers which are then approved by an investment committee overseeing alternative investments. Zurich will generally not consider investing with fund managers targeting below-market financial returns, or first-time fund managers with no proven track record of value creation.

An example is Zurich's investment in a private equity fund that holds equities in NG Group (NG) since 2018.

NG Group is contributing to sustainable development by repurposing waste from households and industries. Its services extend from waste sorting to mass recycling, including separating contaminated and dangerous waste in order to provide appropriate treatment. Such services are essential to ensure that potentially heavy polluting waste is safely processed, and not discarded to have a harmful impact on people or the environment. On the other end of its processing line, NG Group has an ambition and responsibility to ensure that as much waste as possible is sent to recycling and material recovery, and enable access to recycled materials in the market to reduce the pressure on natural resource extraction. This is core to their mission of regenerating resources and abolishing waste and is a major step towards the circular economy. In 2022, Zurich’s investments helped to avoid approximately 12,000 metric tons CO2e through NG Group recycling activities, such as sending waste to recycling and material recovery compared to extracting virgin materials.

The global waste landscape presents a significant challenge with waste generation expected to increase by 70 percent by 2050¹. In Norway, where NG Group is headquartered, a total of 12.07 million tons of waste² was generated in 2022. However, for Zurich and NG Group, the circular economy represents an opportunity to minimize waste, promote reuse, and enhance the use of secondary raw materials in the production of new goods.

With around 20 processing sites across Norway, Sweden, Denmark and Poland, NG Group handles 2.3 million tons of waste annually, of which 96 percent is sent to recycling, material and energy recovery. As one of Scandinavia’s largest providers of recycling and environmental services, serving over 40,000 commercial and municipal customers, its key business areas encompass recycling, green metals, urban re-use, circular and digital solutions, services related to environmentally friendly waste management and raw material extraction throughout the value chain. Zurich's investment in NG Group is aimed at facilitating innovative business models that enable the repurposing, reutilization, and repair of materials already in circulation for a transition to the low carbon economy.

¹ Global Waste to Grow by 70 Percent by 2050 Unless Urgent Action is Taken: World Bank Report
² Waste accounts – SSB

Planet

Zurich has invested in a highly sustainable building in the Dutch affordable housing sector on behalf of its German life business.

The land and future property was acquired on behalf of Zurich Deutscher Herold in 2021 and construction was completed in January 2023. The De Baak building is a highly sustainable, energy-efficient residential tower boasting 127 apartments in Amsterdam’s mid-market segment, which is part of the affordable housing sector in the Netherlands.

The De Baak building is fully in line with Zurich Insurance Group (Zurich)’s ambitious sustainability targets as it combines a variety of sustainability solutions in its objectives to achieve an exceptionally good energy-savings level of -0.25 (EPC). With that, De Baak is not only sustainable in terms of its use of materials, but it also produces energy with solar panels on the roof and the balustrade of the building. Several features ensure a very low energy consumption, such as the highest quality insulation in the shell, triple glass with sun protection properties as well as an overlapping design of the balconies to provide shade. In addition, the building and the surrounding garden collect rainwater in order to reuse it. The building also offers car sharing, electric vehicle-charging stations and a large number of parking spaces for bicycles to enable tenants to commute sustainably.

The Zurich real-estate team is proud to offer urgently needed affordable apartments to families and others eligible for the mid-market segment, who could otherwise not afford to rent such a high-quality apartment in an attractive location close to the city center. This means the investment is in line with the social aspects of ESG (environment, social and governance) as well as with our environmental targets.

In addition, the De Baak building represents a low-risk investment with stable cash flow due to the increasing demand for affordable apartments in Amsterdam.

“This acquisition demonstrates Zurich’s strong commitment to sustainable investments in the real estate sector. We manage a EUR 14 billion real estate portfolio and aim to reduce the intensity of emissions of our direct real estate investments by 30 percent, in terms of kilograms of CO2e per square meter, until 2025. By 2050, the direct real estate portfolio aims be net-zero, meaning it no longer emits any CO2.”

Matthias Hübner, Head of Real Estate Europe at Zurich

Planet

Zurich supports the decommissioning of the last two remaining coal power plants in New Jersey

Zurich’s private debt investment with MetLife Investment Management has a significant effect on New Jersey’s transition to clean energy generation.

Zurich Insurance Group (Zurich) invested USD 24 million in a USD 200 million financing by MetLife Investment Management (MIM) to support the phase-out of the last two coal-fired power plants in New Jersey, USA. The decommissioning is expected to result in the reduction of 3.9 million metric tons of CO2 in the atmosphere, the equivalent of eliminating over 750,000 passenger cars a year and an estimated USD 30 million cost savings to Atlantic City Electric (ACE) customers. The transaction also supported New Jersey’s Energy Master Plan.

The structuring and financing of the loan were overseen by MIM’s Private Capital team on behalf of MetLife and its institutional clients, including Zurich. The financing allowed Starwood Energy Group, the majority owner of the two plants, and ACE, a regulated electric transmission and distribution utility serving approximately 600,000 customers in New Jersey, to retire power purchase agreements between ACE and the coal-fired plants¹. Both plants ceased generating coal energy by the beginning of June 2022².

“Zurich is proud to be part of a project that will lead to cleaner energy production by transitioning away from the last two coal plants in New Jersey, which reinforces our progress on our own impact investment targets, which include avoiding five million metric tons of CO2-equivalent emissions, and separately improving the lives of five million people per year,” according to Johanna Köb, Head of Responsible Investment at Zurich.

The USD 200 million loan was attractive to investors for a variety of reasons, such as credit quality, the valuation and maturity of the deal, and the counterparty involved, AEC. Moreover, the ESG component of the deal and the fact that the deal’s payment obligations were already pre-approved by both utility regulators and AEC were additional attractive factors for investors³.

As a responsible investor, Zurich uses capital markets to fund solutions to many of the pressing social or environmental issues of our time. Zurich is committed to transitioning its investment portfolios to net-zero greenhouse gas emissions by 2050 and set interim reduction targets for its corporate portfolio for 2025. Furthermore, Zurich invests in various climate solutions investments via impact investment assets around the globe.

¹ https://www.newprivatemarkets.com/metlife-funds-starwoods-200m-decommission-of-nj-coal-plants/
² Logan 31 May 2022
Chambers 7 June 2022
https://www.pjm.com/planning/service-requests/gen-deactivations
³ https://www.infrastructureinvestor.com/metlife-funds-starwoods-200m-decommission-of-nj-coal-plants/