Along with our direct impacts on the environment and society, we are able to make a positive contribution to sustainable development through our investing activities by avoiding socially harmful investments. Sustainability in asset management is therefore a major concern for our company.
In the context of our investment policy we strive for stable and attractive returns in order to be able to meet our underwriting commitments and liquidity requirements at all times while preserving a balanced risk/return profile and broad diversification. Furthermore, we take into account environmental, social and governance (ESG) criteria. We have set out in writing our sustainability approach in the investment sector in our "Responsible Investment Policy", which was developed in 2011 and has been updated twice since then.
When verifying entities as the issuers of bonds or equities, we are guided by, among other things, the ten principles of the United Nations Global Compact, i.e. we pay attention to aspects relating to human rights, working conditions, the environment and anti-corruption. Companies that fail to respect human rights or are complicit in human rights abuses are in violation of fundamental principles of the United Nations. Instruments issued by such entities are ruled out for our investment purposes, as are Issuers that disregard basic labour standards and environmental protection considerations. Lastly, exposures to companies that have been noted for their use of compulsory / child labour or their involvement in discrimination or corruption are also excluded. In our review of government issuers the focus is on whether they are currently subject to sanctions and, if so, what these sanctions are. Furthermore, we avoid exposures to issuers who are involved in the development and proliferation of controversial weapons. With regard to the fossil fuels sector, from 2018 onwards we are excluding issuers who generate 25% or more of their turnover from coal mining and coal-based energy generation.
~90% of investments are subject to Environmental, Social and Governance criteria (ESG criteria).
Book value 2017: EUR 40.1 billion
In total, virtually 90% of our investments (book value as at 31 December 2017: EUR 40.1 billion) have undergone half-yearly negative screening since 2012, depending on strategically motivated shifts in the asset allocation. Our investments are evaluated on the basis of individual ESG criteria that we have developed and continuously review in cooperation with a financial services provider specialising in sustainability. The portfolio subject to this voluntary screening encompasses the asset classes of fixed-income securities (government bonds and debt securities issued by semi-governmental entities, corporate bonds and covered bonds) as well as listed equities. Securities of issuers identified as "non-adequate" are actively scaled back. In addition, potential new investments are checked in advance to see whether the issuers violate the defined ESG criteria. Such exposure is rejected if this is found to be the case.
In the year under review we moved forward with the conceptual design of our Best-in-class investment approach. The tool has now been implemented. The analysis according to ESG criteria encompasses the portfolio that is also subject to negative screening. Early results present a very pleasing picture of the sustainability quality of our current asset portfolio.
An ESG officer on the investment team ensures that ESG criteria are developed and applied and that the policy is followed. In addition, major investment decisions are discussed and approved by the Investment Committee, two of whose members belong to the Executive Board.
By exercising our voting rights we are able to influence the conduct of business at listed companies. However, given that the proportion of listed equities in our asset portfolio is less than 2% of our total investments, the effect of engagement in this area is limited relative to our overall investment universe.
For this reason we have not to date adopted any voting guidelines on environmental and social issues in connection with the sustainable orientation of our investments. In the context of our responsibility as an investor we concentrate on the development of the previously discussed ESG criteria and the regular screening of our investments, now complemented by the best-in-class approach. Should the proportion of listed equities in our total portfolio increase significantly on a lasting basis, we shall revisit the topic of "active ownership" and decide on further steps.