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Responsible investment strategy

As an integral part of our Group strategy, corporate responsibility is also reflected in our sustainable approach to investment. The Principles for Responsible Investment (PRI) serve as our framework.

Insurance companies are subject to strict security and return requirements. They have to ensure that their clients’ money is invested both safely and profitably. Munich Re’s investments are largely bundled under the umbrella of MEAG, our internal asset management arm. This simplifies the process of investing Group assets in accordance with uniform rules and principles and also helps us manage and keep track of investments at all times.

MEAG currently manages a global portfolio worth more than €250bn. In addition to financial considerations, we also take environmental, social and governance (ESG) criteria into account when making investment decisions. The bulk of our investments meet sustainable investment criteria. Our asset management follows the Principles for Responsible Investment (PRI). We played a prominent role in drafting these principles and were the first German company to sign them in 2006.

Below, we describe how we put into practice our approach to sustainable investment, the processes we have established, and the product solutions we offer.

Our approach: Responsible Investment Guideline

At Group level, a team consisting of representatives of Munich Re, ERGO and MEAG develops and adapts our strategy for socially responsible investment in line with PRI requirements. Some 100 experienced MEAG portfolio managers are responsible for implementing investment decisions and selecting attractive securities.

As early as 2002, we decided that our equity and bond investments had to meet specific sustainability criteria. In 2005, this requirement was incorporated into a Group-wide guideline. The Responsible Investment Guideline (RIG) was extensively revised in 2016 and now summarises all guidelines and requirements related to PRI and ESG concerning asset management at Munich Re (Group). For the asset classes of infrastructure, renewable energies and agriculture and forestry, and from 2018 for private equity, we have established an investment process that takes into account both financial and ESG criteria. We regularly review our sustainability criteria for these asset classes using the ESG criteria of external rating agencies.

 
Our Responsible Investment Guideline (RIG):

The RIG is applicable to Munich Re, including its reinsurance and primary insurance branches worldwide. It applies to the complete investment portfolio, no matter whether managed by MEAG, any other third party or the company itself. The RIG includes the following regulations:

[1] […] The majority of the investments in shares, corporate, government or covered bonds, real estate and alternative investments should be invested in assets that are members in one of the established sustainability indices or meet other accepted sustainability criteria. […]


[2] Munich Re does not invest in companies that produce, trade in or transport banned weapons if such production, trade or transport is material for the respective company. […]


[3] Trading and holding investments in food-related commodities (e.g. grains and oilseeds, livestock, dairy, etc.) and related derivatives is not allowed. […]


[4] The Group Corporate Responsibility Committee (GCRC) evaluates and prioritises sensitive issues for Munich Re (Group). There are position papers in place for the following sensitive issues:
oil sands, fracking and mining. All these position papers include specific questionnaires regarding ESG aspects. For arctic drilling there is a position paper and guideline in place. Insurance risks related to arctic drilling are to be referred to an expert team, the Arctic Drilling Panel, for assessment […]


[5] The position paper and guideline on investment in farmland are to be taken into account as part of the due diligence on investment decisions in relation to farmland. This applies both to investments in funds and to direct investments for the purpose of leasing and/or farming.


[6] Investment in equity shares of companies which generate 50% or more of their entire revenue from coal mining and energy production based on coal is not permitted.


[7] Investments into government bonds and bonds of government-related institutions of countries assessed in a certain category according to Sustainalytics Country Risk Monitor are not permitted.
 

Our sustainable investment criteria in the different asset classes 

  • Equities and corporate bonds: We base our investments on the analyses and classifications of external research providers in the field of sustainability. Munich Re invests in equities and corporate bonds featured in sustainability indices, such as the Dow Jones Sustainability World Group Index, the FTSE4Good Index Series and the Ethibel Sustainability Index (ESI).

  • Government bonds: We also assess government bonds in terms of sustainability using the internal Munich Re (Group) sustainability country rating, which is based on the Country Risk Monitor of the Sustainalytics rating agency. In cases where countries fail to satisfy our criteria, MEAG refrains from investing in their government bonds or the bonds of quasi-governmental organisations.

  • All other bodies issuing interest-bearing securities, such as state-owned companies, public and private financial institutions, or issuers of covered bonds, are assessed as well. We use the ratings of independent providers of ESG analyses, for example oekom research, for this purpose.

  • Real estate: Sustainability is also important for us when it comes to real estate. We have defined sustainability criteria (for example, for energy efficiency and construction materials), which we apply on the purchase, construction or renovation of properties.

  • Infrastructure/renewable energies: As investments in renewable energies or infrastructure may extend over very long periods, we carefully examine all risks associated with such investments. For this investment class, we have also defined specific environmental, social and governance aspects (ESG criteria), which form part of the due diligence. In addition to these aspects, we examine meteorological and climate-related factors (such as solar irradiation in the case of solar installations or wind force in the case of onshore wind farms), as well as political parameters such as the relevant national energy policy.

  • Agriculture and forestry: In the asset class of agriculture and forestry, we have also established an investment process which, as well as financial criteria, follows additional important objectives relating to investment (including ESG criteria). We regularly review our sustainability criteria for these asset classes using the ESG criteria of external rating agencies.

  • Private equity: For private equity investments, we consider in the course of due diligence whether ESG criteria or an appropriate Responsible Investment Guideline should be applied to the target fund.


Enhancement of MEAG’s approach to sustainable investment: Integration of ESG


Since June 2017, MEAG has been working with MSCI ESG Research, a leading provider of sustainability analyses and ratings in the ESG area. The aim of using MSCI ESG Research and MSCI ESG ratings is to further refine and optimise MEAG's approach to sustainable investment. With its high degree of global coverage of the most important asset classes, MSCI supports MEAG in determining a sustainable investment universe and selecting sustainable individual investments.

The plan for 2018 is to introduce a new, optimised sustainable-investment process in which MEAG’s portfolio managers and credit analysts feed ESG criteria into investment decisions in addition to the traditional financial information. The integration of ESG enables a holistic analysis to be performed and the risks and opportunities in an investment to be better understood. It goes beyond conventional financial analysis, helping us to identify risks and opportunities in the ESG area. The integration of ESG results in better long-term investment decisions and optimises the risk-return ratio in our investments.

Our investments: Focus on renewable energies

Investments in infrastructure projects focusing on renewable energies are a particularly important aspect of sustainable investment. They have a double leverage effect: by using our risk knowledge to promote both new technologies through investments and innovative coverage concepts, we contribute to the advancement of social developments.

On behalf of Munich Re, MEAG – the Group’s internal asset management arm – invests around the world in infrastructure projects such as solar power plants and wind farms. The capital invested (equity and debt) is approximately €1bn. The figure is expected to rise continuously in the next few years.

We will continue to ensure that our infrastructure investments are well diversified, both regionally and by segment. This will enable us to obtain a spread of the technological and political risks, and thus of this portfolio’s main risk drivers.

Our products: Investment funds with sustainable performance

Meeting economic, ecological and social requirements need not be a contradiction in terms. MEAG offers its institutional and private clients the international equity fund MEAG Nachhaltigkeit, the defensive mixed fund MEAG FairReturn and the international bond fund EM Rent Nachhaltigkeit, all of which aim at sustainability:
  

  • MEAG Nachhaltigkeit: The equity fund MEAG Nachhaltigkeit, which was set up on 1 October 2003, primarily invests worldwide in companies that conduct business in a responsible manner. Companies are selected on the basis of their environmentally friendly and socially responsible track record as well as their financial performance. The aim of the fund is to achieve attractive growth in value by investing in the international stock markets while respecting sustainability principles. Producers of tobacco and alcoholic beverages, and arms manufacturers are excluded, as are companies in the gambling industry.

  • MEAG FairReturn: This absolute-return fund, launched in June 2009, aims to achieve constant income together with attractive growth in value in the the medium term while respecting sustainability principles. The fund invests primarily in bonds and equities issued by European companies that behave responsibly. Issuers are selected on the basis of their environmentally friendly and socially responsible track record as well as good corporate governance and financial performance. Companies operating in controversial sectors (e.g. tobacco, alcoholic beverages, weapons, armaments and gambling) are excluded.

  • MEAG EM Rent Nachhaltigkeit: The funds invests primarily in bonds issued by emerging-market countries and companies that have achieved healthy, stable growth and operate in a sustainable way. A best-in-class approach is used to identify issuers that are leaders in applying the ESG criteria. Companies operating in controversial sectors (e.g. tobacco, alcoholic beverages, weapons, armaments and gambling) are excluded.

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This publication is available exclusively to Munich Re clients. Please contact your Client Manager.