Austrian Pensionskassen are allocating 31.3% of their assets to sectors that have a negative impact on climate, according to a report by the Financial Market Authority (FMA).
The regulator conducted a stress test to assess risk management activities of various pension funds’ business models in the field of sustainability and impact on climate. It found that Pensionskassen are particularly exposed to energy-intensive (12.1%) and real estate (9.9%) segments with an impact on climate.
The FMA considered utilities, transport, real estate and energy-intensive segments as so-called “climate-relevant” sectors, based on their contribution to CO2 emissions, while fossil fuels contribute indirectly to high CO2 emissions, it added.
The report noted that the share of assets invested in activities with an impact on climate varies for individual Pensionskassen between 28.6% and 38.6%, but seven out of eight funds show values above 30%.
Employers allocate 20.7% of liabilities, primarily actuarial reserve and equalization reserve, to climate-relevant sectors including energy-intensive segments and utilities (7.7% each), transport (3.7%), real estate (0.3%) and fossil fuels (1.4%).
By using the PACTA tool, which measures equity and bonds portfolios with regards to CO2 emissions, the regulator found that $2.1bn (€1.7bn) of equity and bonds, or 7.1% of total investments, is allocated in segments with an impact on climate change, mostly fossil fuels and energy.
PACTA has identified $3.81bn, which equals to 13.7% of total assets, as climate-relevant.
Six out of eight Pensionskassen in Austria take into account ESG criteria if returns do not suffer, while five funds stated that for certain types of investments ESG policies are not relevant.
Changes in asset mix
Austrian Pensionskassen assets under management reached €23.2bn at the end of June. The investments are overall diversified and conducted through funds, either Spezialfonds or funds of funds, often managed or “significantly influenced” by the Pensionskassen, the FMA said.
Allocations to government bonds fell slightly to 41% in Q2 from 43% in 2019, while equity remained stable year on year in the second quarter at 34%, according to the report.
Pensionskassen had a 4-12% lower exposure to government bonds. The interest rate risk is often controlled tactically using derivatives, the regulator added.
After hedging, pension funds allocate around 30% of investments to foreign currency. Derivatives also play an important role in efficient portfolio management, reaching a nominal value of €1.6bn in June this year, the report added.
Investments in “unregulated markets”, the FMA said, increased by €500m or 20% between 2019 and 2020.
In the last few years total assets invested in unregulated markets more than doubled, from €1bn in 2015 to €2.7bin as of June this year, with 10% of the assets, or €295m, allocated to infrastructure.