Net-zero in investments

Zurich strongly believes that simply divesting from companies with carbon-intense footprints is less effective than engaging with them to drive the shift to sustainable practices. Many of these companies have the knowledge and engineering capabilities required to make a green transition and harnessing this can benefit sustainability goals. Zurich will:

• engage with top 65% emitters of financed emissions that have not set science-based targets,
• invite these companies to set targets aligned with the Paris Agreement, and
• collaborate with asset managers in highlighting best practice for climate-conscious active ownership and work together for a just transition.

Over a period of at least two years, Zurich will engage with companies directly and through organizations such as Climate Action 100+. We focus on engaging with carbon-intensive companies, such as those operating in the oil and gas sector, on the need to set science-based emissions targets. Should engagement fail and companies refuse to set targets after due dialogue, Zurich will vote against board members at shareholder meetings and where relevant, as a last resort, will divest.

In addition, we will keep advocating for, and engaging on industry action, as well as public policies, for a low-carbon transition of economic sectors in line with science and under consideration of associated social impacts.

The transition to a net-zero economy will require financing for the development of new and replacement of existing technology. The scale of the changes required will vary from industry to industry, with some sectors requiring more investment than others.

As one of the world’s largest asset owners, Zurich will leverage its investments to help mitigate climate change. Our investment strategy aims to benefit society and the environment through, for example, impact investing. We mitigate environmental risks by supporting a climate neutral economy and increasing community resilience.

Zurich’s targets for financing climate solutions enhance our existing long-term commitment to provide green financing solutions under our impact investing strategy announced in 2017. We will:

• grow allocation to climate solution investments,
• avoid 5 million metric tons of CO2-equivalent emissions per year through impact investments, and
• contribute to a market environment that enables a growing pipeline of climate solution investments suitable to institutional investors, based on the experience from building a multi asset class impact portfolio over the years.

We are financing the transition to a climate neutral economy by investing in the following asset classes:

• Green bonds: green bonds enable capital-raising and investment for projects with environmental benefits. These may include renewable energy, energy efficiency, biodiversity conservation, pollution prevention and control, and others. As one of the largest private sector investors, Zurich invests in green bonds that follow the Green Bond Principles.
• Private equity funds: Zurich invests in Impact Private Equity funds that support a zero-carbon economy and encourage environmentally friendly technologies to help mitigate environmental risks.
• Impact Infrastructure Private Debt: we finance clean energy infrastructure and energy efficiency projects to transition to a zero-carbon economy, as part of our direct private debt lending portfolio.
• Real Estate: As a leading sustainable real estate investor we are transitioning our global real estate investments towards net-zero greenhouse gas emissions by 2050. This includes developing and investing in certified green buildings.

Zurich’s emission reduction targets cover both listed equity and corporate bond investments as well as direct real estate investments. By 2025, Zurich aims to:

• reduce the intensity of emissions of listed equity and corporate bond investments by 25% (metric tons CO2-equivalent per USD million invested), and
• reduce the intensity of emissions of direct real estate investments by 30% (kilograms CO2-equivalent per square meter).

All targets are set against a 2019 baseline, based on latest available emissions for December, 2019: 136 metric tons CO2-equivalent per USD million invested (market value based) for listed equity and corporate bond investments; 32 kilograms CO2-equivalent per square meter for real estate investments.

Zurich will continue to take a leading role in the development of CO2-reduction methodologies and initiatives for other asset classes, such as sovereign debt and infrastructure.

Carbon intensity for investments portfolios

Zurich defines the carbon emissions intensity of an issuer as metric tons of CO2-equivalent greenhouse gases emitted (under scope 1 and scope 2 of GHG protocol) per USD millions of capital deployed, aligned with the Asset Owner Alliance target setting protocol. For non-financial companies, capital is defined as enterprise value, and for financial companies, market capitalization is used as a proxy. This is multiplied by Zurich’s outstanding investment amount of that issuer. To derive portfolio level intensity, we use the simple mathematical average of total portfolio carbon-equivalent footprint per million USD in portfolio market value.

Coal, oil sands and oil shale

While we have a strong preference for ESG integration and engagement, there are certain areas where we believe strict exclusions for certain activities are justified. We stand by our position on thermal coal, oil sands and oil shale, established in 2017. A description of our current position can be found here, stating that Zurich generally will no longer underwrite or invest in companies that operate above our defined thresholds.

In accordance with the thermal coal, oil sands and oil shale policy, all initial engagements were concluded by midyear 2021. All companies covered by the thresholds have either been cleared, excluded or are under continued engagement depending on whether they presented credible transition plans. Progress on these targets is monitored and can be revoked if companies fail to meet their transition targets.

For those companies that neither had science-based targets to decarbonize nor a credible plan for a transition from thermal coal, oil sands or oil shale, we have stopped writing new business, initiated the transition to an alternative insurer, divested from equity holdings, stopped investing in new debt and let existing holdings run-off.

Furthermore, we will only consider new clients or investee companies that are already below those limits or have near-term commitments in place to bring them below the limits.

In line with our overarching net-zero targets for our insurance and investment portfolios, our performance management focus will move from individual sector exclusions to tracking our overall portfolio decarbonization and engagement targets.

Oil & Gas

For Zurich’s investments in private debt¹, we have dedicated fossil fuel guidelines agreed with our asset managers. In line with the group wide guidelines, Zurich excludes any thermal coal related assets in these portfolios. Further, these portfolios will not finance oil and gas assets which are not aligned with science-based or government-issued regional/national 1.5°C pathways.

¹ Excluding CLOs and Real Estate

Zurich’s fossil fuel guidelines for private debt investments

Read more about sustainability risk.

A single company or even a group of companies cannot decarbonize our economy alone. It will only happen if enough companies, governments and investors commit and deliver towards their net-zero goals. Every commitment and action adds to the momentum and increases the chance we all succeed. In order to achieve our 2025 targets described above we commit to the following action points:

• Zurich will engage with its top-emitting investee companies to support them in their transition and specifically ask them to set their own science-based targets, as well as showing progress against them.
• We will vote against members of the board of companies, if engagement fails and they do not set targets after due dialogue.
• Zurich will collaborate with asset managers in highlighting best practice for climate-conscious active ownership and work together for a just transition.
• Zurich will keep actively financing the transition through our climate-related impact investments (with a target to help avoid 5 million metric tons of CO2e per year), growing portfolio of certified green buildings and will keep assessing other investment opportunities. Zurich is well positioned, based on its experience from building a multi asset class impact portfolio over the years, to help build a growing pipeline of climate solution investments.
• Zurich will rebalance its listed equity, corporate bond and real estate portfolio in line with the targeted emission reductions for 2025.
• Zurich will keep engaging with policymakers for a regulatory framework conducive to the transition bilaterally and through membership organization, and will continue to contribute to the work of industry organizations such as the Net-Zero Asset Owner Alliance, Climate Action 100+, Science-based Targets Initiative and others in the spirit of advancing together.
• Zurich will keep advocating for a global price on carbon, established at a level that over time becomes consistent with transitioning to a net-zero trajectory. Such a price would mean that negative externalities of fossil fuels and other sources of GHG emissions are properly accounted for and reflected in the price. This would help ensure that a proper assessment of risks and opportunities is reflected in investment and business decisions.

Zurich mitigates climate change risk with the ongoing implementation of its climate change investment strategy. It encompasses measures from scenario planning and ESG integration, to implementing selective exclusion screens and engaging with both companies and policymakers, while making progress on a net-zero emissions balance sheet by 2050.

Please find our progress report and detailed methodology in the metric and target section in the sustainability report of the Annual Report 2023.