As we look for ways to combat climate change, much emphasis is placed on the consumption of resources – what we buy, what we eat, how we travel, and so on.
But how and where we invest can also have a significant impact on climate change. The concept of responsible investment has grown in popularity among both retail and institutional investors and is now viewed as a powerful tool to help combat climate change and help society.
Responsible investment is simply a strategy that integrates environmental, social, and governance (ESG) factors into investment analysis and decisions and takes a long-term view.
“The ultimate objective of responsible investment is to create social and environmental value alongside financial returns,” says Johanna Köb, Head of Responsible Investment at Zurich.
“At Zurich, we have fully integrated responsible investment practices into our overall investment approach and made them part of everyday investment decision-making,” she adds.
“For us, it is about managing our assets of approximately USD 200 billion in a way that creates sustainable value. In other words, generating superior risk-adjusted returns for our customers and shareholders, while having a positive impact on society and the communities where we live and work.”
Here are Johanna Köb’s eight steps for developing a responsible investment strategy to help combat climate change:
8 steps for developing to adopting a responsible investment strategy to help combat climate change
- Establish your responsible investment strategy. The responsible investment ‘toolbox’ has a variety of tools to tackle many social and environmental issues. Focus is critical for success, so establish a clear ‘toolbox strategy’. Zurich’s approach to responsible investment was designed almost a decade ago, revised to reflect our climate change commitments, and continues to be regularly reviewed.
- Do your research. Given its complexity and long-term nature, taking investment decisions to combat climate change can be challenging. Zurich’s Market Strategy and Macroeconomics team helps us to define high-level scenarios and monitor developments with the support of a scorecard that is updated annually.
- Set challenging targets. You won’t achieve anything unless you set targets. Last year, Zurich joined the UN Net-Zero Asset Owner Alliance as a founding member and committed to a zero-emission portfolio of investments by 2050. This will be a challenge, but now that we have set this target, we’re fully focused on achieving it.
- Accelerate green innovation. Actively invest in cutting-edge climate change solutions, from improving energy efficiency to developing meat substitutes. Zurich’s Impact Investment strategy does this by committing USD 5bn in investments that avoid 5 million tons of CO2-equivalent emissions annually, while improving the lives of 5 million people each year.
- Invest in clean energy infrastructure. Transitioning to renewable energy requires huge investment in infrastructure – and investors have a key role to play. For example, through a €150m investment in green bonds issued by Spanish utility company Iberdrola, Zurich will support the development of an offshore wind farm in the UK.
- Influence corporate behavior from the inside. As an investor, you can directly influence the activity in companies in which you invest and ensure climate change is high on their agenda. Develop a voting and engagement strategy to maximize this influence and to encourage boards to take action that will help combat climate change.
- Divest from carbon-intensive businesses (without a clear plan to change). Divestment can accelerate change but requires a targeted and pragmatic approach. Zurich has stopped investing in companies with high reliance on thermal coal, oil sands or oil shale. But some industries require investment to transition to green technologies, so depriving access to capital for those willing to change can turn out to be counterproductive.
- Drive change through advocacy. To transition to a climate neutral economy and society, we need to adjust the rules of the economic game. This requires our policy makers and regulators to introduce climate-fit policies and a conducive regulatory framework: from pricing carbon to measures that accelerate innovation. Zurich uses its voice to advocate for system-level change.