Climate Transition risk in Fixed Income Insurance Investment

Highlights:

• For insurance portfolios, for reducing the carbon footprint given the limited turnover possibilities, we adopt a gradial asset rotation approach, exiting from poor ESG-rated assets gradually while pushing for change in activist approach via our engagement activities. From an insurance investment standpoint, the expectations in terms of transition risk will most probably result in heightened pressure on prices of high carbon footprint assets. This may therefore redesign the sectoral repartition of the economy, impairing carbon-intensive businesses while boosting the greenest ones. Looking at the EIOPA study between a run-off approach or a reallocation one, we conclude that starting to reduce transition risk is warranted as it has limited economic implications and will gradually imply regulatory benefits. 
• We expect Central Banks to intensify pressure on poor ESG-rated corporates over the coming months increasing de facto the ESG premium. Climate change is not yet part of the mandate of major central banks, but the implied medium-term threat to price stability is leading them to start tackling this risk. We take a closer look at the implications expected from the climate strategy of the European Central Bank, in particular the greening of corporate bond purchases and banking regulations. 
• GIAM has a very strong commitment to tackle climate risk within portfolios and a unique multidimensional inhouse approach. GIAM has committed to achieving the Paris Agreement goals by cutting the Group’s greenhouse gas (GHG) emissions attributable to (direct) investments in corporate bonds and equities by -25% from 2019 to 2025. We explain our approach to reaching this goal, going from a prudent exclusion policy, to a strong engagement activity and a detailed methodology to decarbonise portfolio. 

Read the White Paper below