The Swiss pension fund for the employees of the canton of Zurich, BVK, said that “many companies” it holds in its investment portfolio are not yet aligned with the Paris Agreement, which has a long-term temperature goal to keep the rise in mean global temperature to well below 2°C above pre-industrial levels, and preferably limit the increase to 1.5°C.
The pension fund, managing total assets worth CHF41.1bn (€41.7bn), still considers its climate strategy “an effective tool” to achieve further improvements in order to bring the production plans of the companies it holds in line with the Paris Agreement, it added in replying to the results of the Paris Agreement Capital Transition Assessment (PACTA) Climate Test measuring the progress towards climate goals of financial institutions.
The climate strategy of the pension fund, which has taken part in PACTA tests since 2017, is based on exercising voting rights, engagement, exclusion and impact investments, and applies to all asset classes in its portfolio, it added.
According to the PACTA test, however, a large share of Swiss financial institutions lack a credible climate strategy consisting of concrete goals and interim targets.
Moreover, Swiss pension funds still invest in companies to increase oil and natural gas production, and have a higher than average exposure to fossil fuels.
BVK will use the PACTA test with other climate indicators to further refine measures to achieve its net-zero and decarbonisation goals, it said.
Green mortgages
This year the test included a quantitative module for global equity and corporate bond investments, and one for Swiss real estate and mortgages.
BVK’s mortgage portfolio shows a CO2 intensity that is, on average, on par with its pension fund peer group. With a so-called ‘green mortgage’, BVK has been supporting energy-friendly renovations since 2020 to help reduce CO2 emissions.
According to the PACTA test, 55% of pension funds in Switzerland invest in green mortgages, while 22% of banks and insurers invest in the asset class, which represents a low proportion of assets under management (0-20%) for the majority of those invested in Swiss mortgages (87%).
A PACTA survey revealed that the majority of financial institutions in Switzerland support mortgage investing to refurbish buildings through climate/sustainability performance-based conditions, followed by applying standards and defining what counts as an energy-efficient mortgage, and providing advisory services on, for example, local rules relating to climate.
In real estate, BVK-owned properties are reducing their CO2 intensity to below the target for the Swiss building sector for 2030. With a 2050 net-zero strategy and corresponding measures, the carbon intensity will improve in the next few years, it said.
In total, 98 financial institutions submitted 192 real estate and/or mortgage portfolios for the PACTA analysis. The portfolios included over 21,000 buildings directly owned by investors and over 900,000 mortgaged buildings.
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