Zurich Insurance has shifted almost $1 billion of its passive US equity mandates to Morgan Stanley Capital International’s (MSCI) newly-developed environmental, social and corporate governance (ESG) index.
The MSCI USA ESG Universal Sector Neutral Select Capped Index was composed by MSCI, Zurich and asset managers DWS, but will be managed, calculated and distributed by MSCI alone.
This new index administers a 30 per cent reduction in carbon emissions and enhanced ESG outcomes compared to its parent MSCI USA Index.
A total of 629 companies are allocated an ESG score based on MSCI’s metrics ratings system, which also takes into consideration market capitalisation.
Since the new index is sector neutral, high carbon emitting industries have the same overall weighting, but different ESG scores are awarded based on individual company’s.
Zurich provides general liability, health, commercial, cyber, employee benefits and life insurance through risk advisory services and captive structures, such as single-parent reinsurance captives, group reinsurance captives and segregated cell companies.
The global insurer has converted almost $1 billion of its investment portfolio into a fund managed by DWS to track the index and exclude companies that do not meet Zurich’s ESG policy.
Zurich predicts that for every $1 million invested in the fund, exposure to financed carbon emissions will decline from 58 tonnes to 41 tonnes without negatively affecting the expected returns or increasing risk.
David Thompson, chief investment officer of Zurich UK, comments: “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,” he explains.
Mark Guirey, head of EMEA insurance clients at MSCI, adds: “2021 will be a critical year for climate action as we head toward the United Nations conference in November. With a growing interest and need for solutions in this space, we were pleased to develop this index.”
Zurich Group previously co-founded the UN Net-Zero Asset Owner Alliance in 2019, which committed to holding a net-zero investment portfolio by 2050, as well as reduce the intensity of emissions of listed equity and corporate bond investments by 25 per cent.
