How Swiss reinsurers are driving the transformation to net-zero emissions
Switzerland is famously known as a global banking center, but it’s also a hub for insurance and reinsurance. As one of the world’s largest reinsurers, Swiss Re committed to move toward net-zero emissions by 2050. In today’s finance.swiss interview, our reporter Tanya König discusses this much-needed transformation with Pascal Zbinden, who is responsible for asset allocation at Swiss Re
So Swiss Re is a founding member of the Net-Zero Asset Owner Alliance, which is a group of institutional investors committed to transition their investment portfolios to net-zero greenhouse gas emissions by 2050. What impact will this have on Swiss Re’s portfolio construction?
So as part of our commitment to net-zero in the investment portfolio by 2050, it’s already had an impact. We’ve been measuring carbon emissions in our portfolio since 2016 and have already managed a sizable reduction since then. And earlier this year, we announced an ambitious target to reduce it 35 percent further by 2024 relative to 2018. In that sense, it all influences the portfolio construction. We had some exclusions—such as stopping investments in some coal-related assets—but really what we found in our analysis is that, rather than divesting in entire sectors, a selection within the sector of the companies that we think are committed, but also will be the winners in the transition, is key.
What’s the motivation of Swiss Re to make such a strong commitment?
We’ve had a strong commitment already in broader sustainability as a company for many years, including sustainable investing. This commitment to net-zero is really primordial. We see risks and opportunities, so it’s managing the risks in our investment portfolio of a transition but also building on the opportunities.
We’ll talk about the opportunities later, but what are the challenges in this transition?
The challenge is if you look at companies that disclose carbon emissions usage for their own footprint it is still a small number, so the data quality is still emerging. It’s not really that evolved as maybe other financial metrics you look at as an investor. But at the same time there’s enough there to start defining targets for the portfolio.
In Swiss Re’s view, what are key to-dos that the international community needs to accomplish in order to swiftly move forward toward net-zero?
This is an important year with COP26, so that has to be a success with reconfirmed ambitions to want to get to net-zero at the international level. And then carbon pricing is a very important element. We know it from our core business on reinsurance—putting a price is very important and critical. So putting a price on carbon is critical. It’s not a panacea. So again, our role as investors is to engage with our companies to increase their transparency and for them to commit to net-zero. This is equally important.
So what are the risks that could slow down the process and prevent us from reaching net-zero targets?
So there are a number of risks, and I think we need more investors engaged on the road to net-zero. I think the Net-Zero Asset Owner Alliance is a great start. We had similar initiatives on the insurance side and the banking side. I think more of that is needed. And then continued investment into making sure that there is transparency around the risks. In terms of risks, I think one is waiting too long. I think it’s time to really start looking at the portfolio through that lense now and not wait and set these intermediate targets rather than just look at a long-term horizon in 2050.
What would the consequences be in your business model if those targets were not achieved?
Clearly, we’re putting all our current focus so that it is achieved, including our own role, both on the underwriting side and on the investment side. So we look at it as if we have to start now—the portfolio I mentioned and some of the implications already of starting that transition. In a scenario where we’re too late, I think there is still time to continuously adjust, and again that means in our view both building on opportunities, which are arising out of this transition on the investment side, but equally to continue to refine our view on the risks and managing those risks appropriately.
You are also a board member of Swiss Sustainable Finance. So what kind of expertise and resources can Switzerland’s financial services industry and the real economy bring to the table to support the transition to a net-zero economy?
Switzerland is an important financial center, and I think, again, we talk about sustainable finance and the finance sector is a key in this transition across many elements. You have the investment side, so long-term investors like insurers and reinsurers. You have banks in terms of the lending business. You have wealth management. With all of that we have a long track record here in Switzerland and examples in sustainable investments dating back more than 30 years. So we can build on that expertise and on continued innovation to really unlock additional investments on the way to net-zero. We also have start-ups in Switzerland that really are at the forefront of technology in terms of carbon capture, for example.