Migros Pensionskasse (MPK), the CHF29.5bn (€31.7bn) pension fund for Swiss retailer Migros, has switched its foreign equity benchmark to a bespoke MSCI Climate Action Index to reduce portfolio concentration while continuing to support the transition to a sustainable economy.
The pension fund realigned its foreign equity portfolio to the MSCI Climate Paris Aligned index at the end of 2021, judging at the time that the move would not affect returns while reducing risk.
Its 2030 decarbonisation target – a 50% reduction in CO2 intensity compared with the broader equity market – was achieved quickly. However, over the following three years, the Paris Aligned index delivered a higher tracking error versus the MSCI AC World Index than initially expected.
“Moreover, its performance was lower in comparison, and we observed increasing concentration within the index and, consequently, in our portfolio, as well as high turnover among the holdings in the index,” chief executive officer Christoph Ryter told IPE.
According to the pension fund, the growing concentration, reduced diversification and widening performance gaps relative to the broader market were the result of an index focused narrowly on decarbonisation, which significantly reduced the investable universe.
MPK also argued that the MSCI Paris Aligned Index does not actively support the climate transition because it excludes companies in energy-intensive sectors even when they are among the leaders in their industries.
As a result, Migros sought an alternative benchmark that better reflects its sustainability strategy while offering broader diversification and a lower tracking error.
The move to the new benchmark follows the implementation of MPK’s 2025-29 strategic asset allocation, which is increasing exposure to real assets and equities while reducing allocations to nominal value investments.
The new MSCI Climate Action Index, developed in partnership with MSCI, excludes only the most CO2-intensive companies within each sector, while overweighting firms playing a pioneering role in the transition.
While the pension fund expects portfolio CO2 intensity to rise initially, its long-term emissions reduction targets remain unchanged. MPK will also continue to apply its existing exclusion criteria.
Migros’ decision reflects a wider trend among asset owners and providers towards bespoke benchmarks rather than standardised indices.
Danish labour market pension fund PenSam, for example, has also moved to a tailored version of the S&P Carbon Budget Indices.
