Pension funds and insurers turning to green assets

Many of the world’s leading financial institutions are increasingly turning to alternative investments, particularly those tied to environmental or social causes, in order to attract the best returns for their clients and customers.

Foremost among them are many insurance and pension fund managers who are committed to providing long-term, stable investments and achieving social change.

Switzerland’s Zurich Insurance announced this week that it planned to double the impact investments it currently made to represent $5 billion (£3.76 billion) of assets in a move it hopes will “improve the lives of 5 million people a year”.

Zurich, which provides insurance products in property, casualty and life insurance areas in around 200 countries with $190 billion of holdings at present, believes that impact investments alone could reduce carbon emissions among investee companies and causes by 5 million metric tons a year.

The firm’s head of responsible investment, Johanna Koeb, said that Zurich’s move was part of a wider initiative by insurers to tackle the causes of climate change or other social issues – such as deforestation or tobacco use – for which they often pick up the bill.

Impact investing requires the success of investments to be measured against pre-defined goals, Koeb explained, with Zurich currently prioritising investment opportunities that still offered financial returns in line with the broader market.

She added: “We cannot do philanthropy, but we can obtain OK market returns, on top of that we are doing something good.”

This will be achieved largely by investing more in green bonds – loans to organisations of which the proceeds are used to fund green initiatives such as renewable energy – as well as social or sustainability products, which aim to tackle problems like poverty or inequality.

Zurich has already met targets set in 2010 to meet a $2 billion commitment to backing green bonds, which Koeb says have evolved as an asset class and provide far more robust proof of their environmental benefit.

The move comes alongside a host of other European insurers announcing that they would exit coal and other fossil fuel investments. According to campaign group Unfriend Coal, such institutions have already pulled $20 billion of funds out of “dirty” fuels.

Other insurers on the continent, including AXA and UK-based Aviva, have also divested their holdings from tobacco companies, citing the plant’s impact on public health.

“We have decided to stop investing in the tobacco sector and will divest over time,” an Aviva spokesperson said earlier this year. “We consider tobacco as ‘harmful when used as intended’, and have been reviewing our investment position for some time now.”

Pension providers are also hot on insurers’ heels, as this week a UK provider called NOW: Pensions announced that it would redirect 13 per cent of its total assets under management into green bonds.

In a press release published by the workplace pension provider, its main fund now backs green bonds issued by KfW, the European Investment Bank and the French Government. Proceeds from these bonds are set to support a number of environmental projects, including resource efficiency programmes, low carbon transport, sustainable water management and even a biodiversity initiative.

NOW:Pension’s trustee director, Win Robbins, said that backing such projects was indicative both of the strong financial returns available and the environmental benefits that the firm’s pension members supported.

She added: “Encouraging and financing projects which focus on environmental and climate protection cannot be left solely to governments. The green bond market fulfills a vital role for society as a whole, while also benefiting members of the NOW: Pensions Scheme.”

The green bonds market has been tipped to reach a value of over $100 billion for the first time by the end of 2017, as growing interest has seen a number of institutions and public bodies launching their own green products.

Earlier this month Barclays issued the UK’s first green bond worth €500 million, which ended up being oversubscribed by almost 4 times, while French firm BNP Paribas launched a new €100 million green bond fund in October.

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