17 July 2014

IERM Comment: Going green?

Dear friend,

Here at InsuranceERM we're not going to pretend to be environmental crusaders, but even so we were interested to see that Zurich Insurance Group is doubling its commitment to invest in green bonds.

The Swiss insurer has pledged to invest $2bn in this asset class, up from the $1bn target it had set in November. It has also broadened its investment mandate to include issues denominated in European currencies.

Not bad going, really. It's the largest commitment to a green bonds investment made so far, and is a serious move by Zurich given that its investment in this area has been a relatively modest $400m.

Certainly a PR coup for Zurich, but ultimately this must be seen as a financially-driven move. Green bonds enable capital-raising and investment for new and existing projects with environmental benefits, sure, but when it comes to it they are a capital markets tool with the potential to make a profit like any other.

Still, I can't help thinking that more could be done by the regulatory and legislative authorities to encourage these sorts of moves if they are genuinely serious about moving the environmental agenda forward.

Under Solvency II, green bonds will be treated as any other corporate or government bond, so the capital charges they attract will depend on the issuer.

A bond is a bond is a bond, yes, but wouldn't it be interesting if the regulators were able to give some credit for ethical investment? Too late now I suppose, but worth thinking about for Solvency III...

Marcus Alcock,

Editor, InsuranceERM