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Strategic risk analysis

As part of extended risk management, PUBLICA carries out an annual risk analysis according to environmental, social and corporate governance (ESG) criteria to prioritise and then analyse in depth risks that are difficult to quantify and could result in tangible financial losses to the assets managed by PUBLICA. Following the analyses of the prioritised risks, risk-reduction measures are assessed and implemented. On the basis of a stranded assets analysis, PUBLICA has excluded coal producers from its global equity and corporate bond portfolios since 2016. In 2017, cyber risks were prioritised and analysed in depth, resulting in operational measures being adopted to further enhance IT security. In 2018 the Investment Committee decided that in 2019 an in-depth, comprehensive analysis should focus on the risks of companies failing to adjust responsibly to climate change. Following detailed discussions, the Investment Committee decided in December 2019 to develop and implement a climate-efficient index for all equity portfolios.

ESG risk analysis process

1. Overview of ESG risks
A survey of the most important ESG risks is conducted once a year on the basis of various publications, such as the World Economic Forum’s Risk Report.

2. Prioritising of ESG risks
The second step involves identifying the general risks that are most severe in terms of their potential macroeconomic, social, geopolitical, ecological and technological impact.

3. Categorisation from PUBLICA’s perspective
The general risks identified in step 2 are analysed in terms of their specific impact on PUBLICA’s portfolio and then prioritised.

4. ESG issue recommendation
Asset Management recommends to the Investment Committee that it conduct an in-depth analysis of one of the ESG risks pinpointed during this process.

5. ESG issue analysis
Following approval by the Investment Committee, the chosen ESG risk is analysed in depth by Asset Management in terms of its economic consequences for the portfolio, including those resulting from reputational risks. The analysis concludes with the formulation of recommendations for the Investment Committee.

6. Decision on measures
Asset Management’s recommendations include potential measures. A decision on their implementation is taken by the Investment Committee.

7. Implementation of measures
The measures adopted are implemented and reviewed periodically.

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