Method and Data
As part of the sustainability analysis, the main negative consequences of investments for sustainable development are taken into consideration. Considering negative consequences in the investment process can lead to benefits not only in financial markets but also strengthen the resilience of the entire economy and the stability of the financial system. In doing so, it can affect the risk and return of financial products. The main negative consequences for sustainable development can be related to both climate and environment as well as social factors.
To measure the achievement of environmental or social characteristics Ress Capital uses the following indicators:
- Number of insurance companies that contribute to social cohesion
- Number of insurance companies that do not contribute to social cohesion
- Number of insurance companies that follow international norms and conventions
- Number of insurance companies that violate international norms and conventions
The ESG Risk Rating is an absolute measure and can be used to compare both companies and industries. ESG Risk data is currently obtained from Sustainalytics to measure the ESG risk related to Life Insurance companies. The rating is based on a scale from zero to +40, where zero corresponds to the lowest risk. The ESG Risk rating, scores the performance from negligible to severe risk.
Ress Life Investments has a portfolio-weighted ESG risk of 22.7, which places the fund in the medium category, but it is very close to the low-risk limit of 20. A lower ESG risk rating means a lower risk of material financial damage due to ESG factors.
Data sources and processing
ESG risks involve an environmental, social, or governance related (ESG) event or condition that may have an actual or potential material negative impact on the value of the investment. Over time, the sustainability risks could impact a financial risk that can affect the value of investments if it materialises. Consequently, ESG risks are an integral part of our traditional financial analysis and the investment process.
Life insurance companies are analysed from a sustainability perspective during the investment period. In the insurance policies selection process, we use both quantitative and qualitative data as the basis for our analysis. Relevant ESG data is collected from external and independent research, ratings, and analytics firms to evaluate life insurance companies in terms of long-term environmental, social, and governance performance and risks.
Sustainalytics are primarily used as sources in the ESG data-collecting process. The information collected is an ongoing process where changes in sustainability risks and performance are followed up and considered on a quarterly basis. Our conviction to invest in certain policies can thus be strengthened and weakened based on the sustainability analysis.