ESG integration

ESG integration

Investment should not only be motivated by profit, but also by social and environmental goals. One aspect does not preclude the other. Rather, both tend to go hand-in-hand.

We believe that proactively integrating sustainability risks and opportunities, expressed in Environmental, Social and Governance (ESG) factors in our investment decisions will help us to do our job well on a long-term basis (ESG integration). ESG integration – across asset classes, and alongside traditional financial metrics and state-of-the-art risk management practices – helps us to achieve superior risk-adjusted, long-term financial returns.

How we integrate ESG in our investment processes

Our focus on responsible investment has led us to view ESG factors as key considerations to be included when assessing individual investments.

At Zurich, we define ESG integration along four basic requirements: training, data, investment process and active ownership. These four requirements not only help us to integrate ESG factors in the investment decisions, but also to understand and monitor where we or our asset managers stand in terms of capabilities.

We follow a strict interpretation of this strategy. We only apply it to asset classes where sufficient ESG information is accessible, and portfolios offer frequent turnover and sufficient variety of issuers so that taking into account ESG factors can actually influence investment decisions. Although often considered a separate responsible investment tool, we include active ownership practices as part of our ESG integration approach.

The four basic requirements

We work closely with our internal and external asset managers to make sure the following four basic requirements for ESG integration are reflected in their investment approach:

Training

Raising awareness and teaching investment professionals how to use ESG factors

Information

Make ESG data, research and analysis accessible to investment decisions makers

Process integration

Reflect ESG information in the way portfolios are constructed

Active ownership

At Zurich we are convinced that the purchase of an asset marks the beginning, not the end of responsibility

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Raising awareness and teaching investment professionals how to use ESG factors.
It is important for portfolio managers to receive adequate and regular training to help them understand the economic importance of ESG information. That is why all Zurich's investment professionals receive responsible investment training.
A large number of ESG factors can potentially affect risk and return and vary from investment to investment; the channels through which such factors can exert influence are at times complex and vary from sector to sector.
For example, all other things being equal, it is riskier to own equity or bonds of a company that produces excessive greenhouse gas, treats its employees poorly or does not provide information on how it pays its directors, than it is to have exposure to a company that does not do such things. Likewise, it is more rewarding to invest in a company that helps society, benefits the environment and is well governed, or to invest in a real estate asset that attracts tenants by minimizing energy consumption and greenhouse gas emissions.

Make ESG data, research and analysis accessible to investment decision makers.
To reflect ESG factors in investment decisions, portfolio managers need access to relevant information in the form of ESG analysis, ratings, and data.
At Zurich, we have integrated ESG information and climate data into our systems and can have information about environmental, social and governance performance of our portfolios at our fingertips. In addition, our in-house portfolio managers and analysts have direct access to ESG research and analysis sourced from specialized providers.

Reflect ESG information in the way portfolios are constructed.
The process by which ESG considerations are reflected in decisions to buy/sell, or overweight/underweight a certain security or asset needs to be clearly understood. This process should be documented and consistently applied. Each manager and team will have to define an approach that fits a specific investment strategy.
For a description of the tools, policies, and procedures that we apply to make sure ESG factors are indeed fully integrated in the investment process and in day-to-day investment decision-making, please consult the Zurich Responsible Investment Whitepaper.

At Zurich we are convinced that the purchase of an asset marks the beginning, not the end of responsibility
We consider proxy voting and engagement to fall within active ownership.

Proxy Voting

We expect asset managers to execute proxy votes actively, based on best-practice policies addressing ESG issues.
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Engagement

We also expect asset managers to integrate relevant ESG issues in discussions with companies in which they invest, either as part of regular meetings or through separate channels.
Further information on our engagement approach is available in the Zurich Responsible Investment Whitepaper.

How we integrate ESG on an asset class level

Credit	We apply the four basic requirements for successful ESG integration to all our active credit mandates.
Private debt	ESG consideration applied to private loans and infrastructure debt investments.
Listed equities	Active mandates fully integrate ESG along our four basic requirements. Passive and quant strategies selectively use ESG benchmarks or tilts, all others are in scope for proxy voting and engagement only.
Private Equity	We fully reflect the four basic requirements for successful ESG integration in our private equity investment process for primary fund investments, secondary investments, and selected co-investments.
Real Estate	Implementing ESG in real estate is based on three pillars which take into account local best practice and provide a global framework to assess potential acquisitions, as well as the existing portfolio, along the entire value chain.
Supranational, Government and Government Guaranteed Bonds	Disciplined ALM practices and, in some cases, insurance regulation require Zurich to hold substantial amounts of minimum-risk assets denominated in local currency to back local liabilities. Zurich does not generally manage any multi-currency sovereign bond portfolios that would allow for ESG factors to influence issuer selection. Accordingly, this asset class is in scope for engagement only.
Mortgages and Hedge Funds	We are currently investigating ESG integration approaches for the mortgage and hedge fund asset classes

Please find further details on our ESG approach per asset class in the White Paper.

ESG in manager selection

Today, roughly 60 percent of our investment portfolio is managed externally. This outsourcing process provides Zurich access to the world’s best asset managers; currently our assets are managed by over 40 internal and external asset managers.

We work closely with our external managers to ensure they consider ESG and climate-related aspects consistently in their investment processes.

A dedicated manager selection team is responsible for appointing the most suitable manager for each portfolio. In our due diligence for all asset classes in scope, we confirm the manager’s alignment to our responsible investing principles. This includes reviewing the asset managers’ ESG considerations in their investment decisions and monitoring, their views on how ESG factors affect risk-adjusted performance, as well as their commitment to responsible investing, particularly with regard to climate change. Once an asset manager is selected, we use a thorough review process to track performance and development.

More information about our process for selecting and reviewing the performance of internal and external asset managers can be found in our White Paper.

Proxy Voting

Voting records for our in scope voted equity, AUM based.

Our voting activities in 2023

Our voting behavior in 2023

More about ESG Integration

ESG integration

How we integrate ESG in our investment processes