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January 25, 2002

Swiss Insurance Company Invests in Sustainability
    by William Baue

The reinsurance giant Swiss Re supports sustainability not only in its business practices but also in its investments, and has one portfolio committed exclusively to sustainability.

SocialFunds.com -- Swiss Re (SWRE), one of the world's largest reinsurance companies, has established a reputation for advancing the cause of sustainability around the globe. The Zurich-based firm recognizes the negative effects environmental degradation can have on business, and understands that sustainable business practices help counteract these effects. Swiss Re bases its insurance rates in part on their clients' environmental impact. Because sustainable companies have less risk in terms of potential losses due to environmental mismanagement, all other things being equal, those companies would pay lower premiums.

Swiss Re's commitment to sustainability has carried through to its internal investments as well. In 1996, the Swiss Re Investors division established a sustainability portfolio through its Group Sustainability Management Unit. Swiss Re's definition of sustainability investing implies a best-of-class method where fund managers consider all sectors for investments, identifying those companies within a sector that implement the most progressive environmental safeguards.

"Ecological criteria are given equal weight to economic criteria in evaluating prospective investments," reads an explanation of the sustainability portfolio's investment strategy in Swiss Re's 2000 Environmental Report. The Group Sustainability Management Unit first assesses the ecological innovation potential of a prospective investment before assessing its investment return potential; only if it passes muster on both counts does the team perform due diligence to ascertain the viability of the investment.

In 2000, for example, the unit considered 20 new companies, only a third of which warranted detailed analysis. In the end, the portfolio managers decided to invest in only one company: AgraQuest, a California-based developer and producer of natural microbial (as opposed to chemical) pest controls.

Swiss Re invested directly in AgraQuest, which had yet to list on a stock market. Swiss Re invests directly in ten other companies, such as Precious Woods, which practices sustainable forestry in South and Central America, and Evergreen Solar, a photovoltaic cell producer that subsequently made an initial public offering (IPO) on the NASDAQ. Swiss Re invests directly to support the expansion of sustainable business practices that might not flourish without the necessary infusion of venture capital.

The Group Sustainability Management Unit diversifies the portfolio by investing in funds as well. For example, the portfolio's holdings include the Storebrand Principle Global Fund, which implements a sequential analysis and selection process. Storebrand starts traditionally by assessing an investment's financial viability, and then uses sustainability criteria to select the top performers across industry sectors. The portfolio also invests in three other funds.

Swiss Re splits its sustainability portfolio, a total outlay of 86.4 million Swiss francs ($49.43 million in U.S. dollars), evenly between private equity investments and investment funds. By the end of this year, the unit plans to increase private equity holdings based on sustainability criteria to between 12 and 14 companies. It also plans to increase overall investment to 100 million Swiss francs, the original target value of the portfolio.

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