Ulla Enne (pictured), head of responsible investing and investment operations at Switzerland’s NEST Sammelstiftung, talks to Luigi Serenelli about the pension fund’s central focus on sustainability


Sustainability lies at the core of the investment strategy of NEST Sammelstiftung, the Swiss multi-employer pension fund for small and medium-sized companies. NEST’s investment beliefs recall the values that over three decades ago were laid out in the Brundtland report, named after the chairwoman of the United Nations’ World Commission on Environment and Development (WCED), Gro Harlem Brundtland. The report, titled Our Common Future, published in 1987, was the result of the commission’s effort to set out “a global agenda for change” based on long-term environmental strategies to achieving sustainable development by the year 2000 and beyond, according to the chair’s foreword. 

The UN report mentioned natural disasters, drought, floods, deforestation, biodiversity, and the risk of climate change as challenging events for future generations, accurately predicting the present. NEST has originated 15 sustainable investment principles from the UN report. The foundation acts in accordance with those principles, among which core ones are co-determination, independence, and intergenerational justice. 

The 1980s was also the decade during which the second pillar of the Swiss pension system was established by the law known as BVG-Obligatorium, which introduced mandatory workplace pensions. That is when NEST was created, with its roots in the left of the Swiss political spectrum. 

“We established a Pensionskasse sticking to the idea of self-responsibility and participation in

the pension fund,” says Ulla Enne, head of responsible investing and investment operations. Today the Sammelstiftung caters for around 4,000 companies, from firms with one or two employees to much larger companies, and totals over 27,000 members insured by the Pensionskasse, equating

to around CHF 3.54bn (€3.6bn) in assets under management. 

“Some of our main values are sustainability and self-determination. We have a delegated assembly that gives the right to have a say, so that companies are informed, and really take part in the discussion on sustainability and the strategy that the Stiftungsrat (board of trustees) lays out every year,” Enne explains. 

NEST has set up a governance structure that allows the representatives of all the companies to talk to the pension fund when it presents proposals. Enne says: “We really want to keep contact with the base of the pension fund.”

Sustainability is an integral part of how NEST manages its assets. Since its inception, it has been crucial for the foundation that investments support the sustainable development of the economy and society, and to ensure that the assets are invested according to ethical and environmentally-friendly principles. 

“Our aim was and still is to be the leading ethical and environmentally-conscious Pensionskasse in Switzerland,” Enne says. The fiduciary duty of the pension fund is therefore to generate pensions for future generations while contributing to the sustainable development of the economy. “Based on our values, we don’t want to invest in fields where there is no progress in terms of the sustainable development of the economy,” Enne says.  

At a glance

NEST started implementing its sustainability agenda through exclusion criteria, for example by excluding nuclear in the 1980s, when it was a subject of political debate, as it is again today. Its sustainability strategy is based on exclusion and selection, meaning that in the pre-investment phase NEST defines the investment universe based on positive screening as well as exclusion. Apart from nuclear energy, the foundation also avoids investment in activities linked to coal, genetic engineering in agriculture, controversial medical gene technology and defence. It also avoids financing what it deems to be violent regimes as well as activities linked to money laundering, corruption, child and forced labour, biopiracy, and industries like alcohol, tobacco, pornography and gambling.

Increasingly, NEST also looks at the impact of its investments. “We don’t want to invest in companies with a negative impact on environment and society,” Enne says. Beyond the exclusions criteria, NEST supports investments in companies working for a sustainable future. In the infrastructure asset class, for example, the foundation does not have any stake in oil pipelines or airports. The main focus instead is in renewables, energy efficiency and education. 

The Swiss second pillar law (BVG) is the foundation’s set of guidelines for the design of its strategic asset allocation. Within the model, a key component is the ability to bear risk, taking liabilities into account. “For us illiquidity is not a problem, we have a relative high allocation to alternatives, for example private equity, for long-term investments, but you don’t find hedge funds or commodities in our portfolio for sustainability reasons. Our alternatives portfolio consists of investments in infrastructure, private debt and insurance-linked securities (ILS),” Enne says. 

NEST started investing in private equity almost two decades ago, when the market for sustainable investments was small, let alone the interest of pension funds in private equity and the application of sustainable criteria to the asset class. The Pensionskasse does not invest directly in private equity but it looks to awards mandates to managers based on its investment criteria. “We have looked for advisers that share a certain view on sustainability based on subjects and sectors, for example on exclusion of certain sectors,” Enne adds. 

Through engagement with its private equity managers, NEST performs annual checks for investments in underlying companies whose behaviour is controversial in terms of sustainability, and asks managers to explain. “We have to know where we are invested and where there are issues with regard to sustainability and engagement.” NEST finds that human rights in supply chains is gaining much attention currently as an engagement topic.  

The Pensionskasse internally manages only direct real estate investments, while all other asset classes are managed externally. The foundation splits the application of its approach on sustain-ability from the investment decisions to avoid conflicts of interests. 

“For example, oil and gas is not good from a sustainability point of view, but the asset manager can invest in those companies if the investment matches the risk-return profile, so we step in and give our specifications on the investment universe. Our idea of sustainability is standard for each asset manager, who then builds portfolios based on those criteria. We look for asset managers on that basis,” Enne says.   

The team managing the assets has four members, including Enne, who is mainly responsible for sustainability,  the chief investment officer and two further professionals. “We don’t have internal portfolio managers, for us the task is to supervise the management, to implement sustainability… it is the operational side of the job,” she says. 

“Through engagement with its private equity managers, NEST performs annual checks for investments in underlying companies whose behaviour is controversial in terms of sustainability”

In terms of governance, an investment committee of experts, including some from outside the organisation, advises the Stiftungrat on the design of the investment strategy. The investment committee decides how the strategy will be implemented, and the investment team implements it. 

“The pension fund actively looks for managers who follow its idea of sustainability to build a portfolio with restrictions. In fixed income, NEST has a strict country rating”

“The governance in investment management works. We also have a legal department internally that designs guidelines on governance and we have set up rules on competence… that divides the tasks among the members of the investment team, and we have an external review of the investments by an external investment controller,” Enne explains.  

NEST does not make active decisions on tactical allocations, but a rule-based rebalancing mechanism is in place to stay within to the range of investments decided by the Stiftungsrat for each asset class. 

“With the current fluctuations on the market, the rule-based rebalancing mechanism has been triggered very actively. When the equity market went down, we did not sell but held investments to stick to the strategic quota.” So far this year Nest has recorded negative returns to the tune of around -9%. When equity markets rise, NEST´s portfolio also tends to perform well, but to a lesser extent than other pension funds, because it of its restricted investment universe. On the other hand, the foundation’s principle-based portfolio construction methodology also means that during market downturns the impact of the turmoil on the pension fund is less severe. This, Enne says, is the result of investing sustainably. 

NEST believes that sustainability does not negatively affect returns, especially in the long-term “Our ten-year returns are [above the] market average. We regularly conduct an assessment of our managers where we look at the performance attribution, to understand where positive or negative contributions for returns come from. When oil and gas do well, then we lag behind in terms of returns, but the opposite is also true. In these cases, we have to breathe deeply and keep in mind our long-term view,” Enne says. The manager mandates are assessed by NEST regularly. If the Pensionskasse does not earn returns in line with the market, it evaluates the reasons and could ultimately change the managers if necessary.

“In equities and bonds we invest as a standard Pensionskasse, but our sustainability focus means that we don’t have passive index mandates,”

says Enne. The pension fund excludes equities based on the MSCI world index, leaving the foundation with an investable universe equating to around 40% of the index, which Enne describes as a “strong limit”. 

The pension fund actively looks for managers who follow its idea of sustainability to build a portfolio with restrictions. In fixed income, NEST has a strict country rating. “This means that for us less than 20 countries globally are investable, we have therefore more corporate bonds than government bonds in the portfolio,” Enne says. 

Among the countries excluded from the investable universe is the US, due to the use of the death penalty, among other things. Russia is also not investable. “Civil rights and corruption are very important for our country rating, and to decide whether to invest in government bonds, or in countries that have not signed the anti-nuclear proliferation treaty,” Enne says. 

NEST will reassess its strategic asset allocation over the course of the next two years as scheduled. The recent developments in the market will be part of the discussion, keeping in mind the goal of maintaining a strong funding ratio. 

Other issues that will be discussed will probably relate to private equity, which is known to be not always transparent. The current market environment represents a challenge to managing pension assets, says Enne. 

“One part of the asset and liability management study will look at the markets and asset classes in the future. Currently, the public is more vigilant on the topic of climate change and [that includes looking at] the role of pension funds too. One challenge remains communication, as well as reporting for pension funds. These are [additional] costs on asset management,” Enne adds.