What is responsible investment?

Marc Dünki
May 29, 2019
Sustainability
The term responsible investment refers to incorporating factors which concern the environment, social responsibility and corporate governance, referred to as ESG factors, in our investment decisions. That means that each new company we invest in has to meet a minimum standard in these three areas.

Easier said than done

Investing responsibly and sustainably requires a general understanding of what “sustainability” actually means in the context of investment. Should you always aim to generate as high a return as possible, keep the risks as low as possible or invest in companies which contribute to sustainable development? The latter is not exactly straightforward either. For instance, what about companies that take an exemplary approach to tackling environmental issues, but have problems with child labour in their supply chain? When it comes to child labour, we are then faced with the question of whether banning it is constructive or whether opportunities should be created so as to enable adults to earn more than their children, therefore rendering child labour obsolete?
As of yet there is no cross-sectoral definition or standard by which companies can be guided. That is why we at the Baloise Group have put together our own thoughts on this matter. 

Minimum requirements to be eligible for investment

A large number of companies nowadays are evaluated by what are referred to as rating agencies in relation to the incorporation of ESG factors in their commercial activities. Within these ratings, we have set a minimum standard which must be fulfilled by all companies we invest our insurance assets in. The rating system we use, provided by MSCI, ranges from AAA, AA, A, BBB, BB to B and CCC. We apply B as a minimum standard for all our new investments.

What’s more, owing to reasons of climate, environmental and health protection, we do not invest in companies whose revenue from carbon exceeds the sectoral directive of 30 per cent.
 

Better corporate governance with voting rights

We exercise our statutory voting rights for Swiss stocks and, by doing so, advocate the principles of good and ethical corporate governance. By acquiring shares in various different companies, we are entitled to register our consent, refusal or abstention with regard to different items on the agendas of these companies. We exercise this right and issue voting recommendations for our indirectly held investments too. In doing so we ensure compliance with the guidelines on ethical corporate governance, as we implement them ourselves.

Ruling out investments

We understand that certain investments are not compatible with a responsible investment policy and therefore require special assessment. As a result, Baloise Asset Management has been using exclusion criteria for years. In particular, we follow the recommendations of the Swiss Association for Responsible Investments (SVVK – ASIR) and have fully adopted the published exclusion list. This relates primarily to companies from the defence sector operating in the field of cluster munitions, anti-personnel mines or nuclear weapons.

Why are we doing this?

A number of different measures need to be set in motion to meet the objectives of the Paris Agreement under the United Nations Framework Convention on Climate Change and avert the climate crisis. Switzerland as a major financial centre and the Baloise Group as a financial service company have major leverage through their choice of investments, and that can be very effective. Through a carefully considered choice of investments, we can influence companies, their CO2 emissions, social standards and corporate governance. By investing responsibly we do not forgo any returns for our clients, instead extending our long-term profitable investments to include forward-looking indicators.