Zurich UK has switched almost $1bn of its investment portfolio into a new ESG benchmark, as part of its action to curb carbon emissions.
The benchmark, the MSCI USA ESG Universal Sector Neutral Select Capped Index, delivers a 30% 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 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. 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 £25 billion of pension and life insurance assets on behalf of its customers, invested across equities, bonds and property. The insurer plans to switch almost $1 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 said its analysis shows that for every $1million 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, said: “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.”
Zurich confirmed that the overall investment management charges for customers investing in the fund would remain unchanged.
[*”financed carbon emissions” of an investment portfolio are the sum of operational greenhouse gas emissions (scope 1+2 under the GHG Protocol) of the underlying companies which are attributed to investors according to the share of overall financing (equity and debt) the investor provides to the company. These financed carbon emissions in sum form the carbon (CO2e) footprint of a portfolio.]
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