Enhancement refers to the systematic integration of ESG criteria along the entire investment process, from the Strategic Asset Allocation (SAA) to monitoring and reporting. Integrating ESG considerations into our investment portfolio makes economic sense as it improves risk-adjusted returns and reduces downside risks, especially for long-term investors. Today, close to 100% of our SAA considers ESG aspects.
Swiss Re Asset Management invests in companies that are well-prepared for future sustainability challenges by analysing their exposure and ability to manage underlying ESG risks. In 2017, we took an important step forward for our actively managed listed equity and corporate bond portfolios: as part of our active risk management, we switched to ESG benchmarks consisting of better-rated companies from an ESG perspective. Limited leeway for deviations is given, whereby such investments are required to have either a positive ESG trend or provide compensation for the underlying ESG risk. The implementation of these benchmarks allows us to have both the right measurement and appropriate incentives for our portfolio managers in place. If benchmarks are not applicable, a minimum ESG rating threshold is applied to our mandates, such as the buy-and-maintain corporate bond mandates.
For several years now, we have been successfully applying a minimum ESG rating threshold of BB for sovereign, supranational and agency bonds. Any possible exception to the minimum rating would be driven by Asset-Liability Matching (ALM) considerations.
Infrastructure loans are an attractive asset class for our investment portfolio given their credit quality and inherent liquidity premium. Our infrastructure loan investments are assessed against a catalogue of ESG parameters to evaluate the underlying sustainability risk.
New investments in private equity are only made into funds that adhere to ESG guidelines and we review the ESG performance and compliance of each potential investment.
For our real estate investments, new properties are evaluated from an environmental and social perspective.