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Impact Investing

IPE special report May 2018

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Swiss pension funds, insurers offered 2°C climate alignment tests

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Swiss government authorities are offering the country’s pension funds and insurers an opportunity to test their equity and corporate bond portfolios to see if they are compatible with the 2°C maximum global warming target under the international climate change agreement reached in Paris in December 2015.

The Swiss occupational pensions trade body, ASIP, has encouraged its members to take part in the pilot tests.

They are being offered by the federal office for the environment (Bundesamt für Umwelt, BAFU) – a unit of the Swiss federal environment ministry – and the state secretariat for international financial matters.

The tests will be carried out by 2° Investing Initiative, a climate change think tank and research organisation.

They will be free and anonymised. Analytical results will be shared exclusively with the respective pension fund or insurance company, with only anonymised results used for meta-analysis. The names of participating investors will not be shared.

The tests are based on a model that uses 2°C warming scenarios from the International Energy Agency. It is said to have been used by more than 100 institutional investors to date. BAFU said the majority of these investors deemed the model relevant for the consideration of climate impacts as part of their investment decisions.

2° Investing Initiative said the tests were not intended to serve as a risk analysis, but they could still shed some light on potential alignment or misalignment with long-term trends. Pension funds and insurers have been invited to provide information about portfolio turnover, which those offering the tests said can help assess potential long-term risks.

The tests are intended to help Switzerland fulfil its obligation as a signatory to the Paris Agreement, which aims to make financial flows consistent with the goal of keeping global warming to a maximum of 2° Celsius.

The Swiss government has so far opted to encourage voluntary initiatives by the country’s financial sector, with its support. This contrasts with the approach taken in France, for example, where the government has legislated to require institutional investors to report on how they take into account their exposure to climate risks and their contribution to limiting climate warming.

ASIP is in favour of the voluntary approach and supports awareness-raising and education on the issue of climate change. In its view, it said, there is no need for legal rules or regulations specifying the extent to which pension funds should take into account sustainability criteria in their investments.

Decisions about carbon risks and ESG criteria in general must be left to the board of trustees, said the association.

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