The share of assets under management (AUM) of Swiss pension funds making efforts to reduce the financing of greenhouse gas emissions has increased from 7% in December last year to 10% in April this year, according to figures released by the Swiss Climate Alliance, an alliance of civil society organisations for climate protection.
AUM for Pensionskassen choosing best practices and actions that contribute to decarbonising the economy rose from CHF64.5bn (€58.5 bn) in December to CHF85.4bn in April, out of a documented total of CHF891bn.
“This is due to some newcomers whose preparatory work turned into a proven, already finalised portfolio decarbonisation, which at this moment in time can be estimated as being in line with the 1.5°C goal of the Paris Climate Agreement,” Sandro Leuenberger, responsible for finance and climate at Climate Alliance, told IPE.
PKBS, the Pensionskasse of the city of Basel included in the latest rating among those following best practices, has recently decided to exclude companies active in fossil fuel sectors, or that generate revenues from fossil fuels “of unconventional origin” from its pool of investments.
Migros was also included in Climate Alliance’s list as a green Pensionskassen for applying an ESG index that reduced CO2 intensity by 30% compared with global average.
Total assets of pension funds that have started to decarbonise their portfolios, rated as “orange”, but with potential to become fully “green”, amounted to CHF108.2bn.
Publica, which has excluded coal from investments and has a new equity index “potentially very climate-effective”, is among the pension funds in the “orange” rank, according to Climate Alliance. It will move to the “green” rank once it shows evidence of a “substantial decarbonisation”, it added.
Climate Alliance expects the share of invested assets of “green” pension funds to increase to 22% by the end of 2021. However, Leuenberger added, “still 78% of the AUM are either actively financing global warming [ranking “red”] or are only partly in line with the goals set by the Paris agreement [ranking “orange”].”
The amount of assets under management of pension funds that have made the first step to decarbonise their portfolios, but are not ready to rank “green” yet, which are currenly rated as “orange”, totalled CHF266.9bn in April.
The pension funds with a “red” rating, manage assets worth CHF394.9bn. Climate Alliance will aim to strengthen the criteria applied for the rating in line with the requirements set by the 1.5°C target of the Paris Agreement by 2022, Leuenberger said.
Further steps required
Climate Alliance expects pension funds to move away from what it considers a “conventional, mainstream diversification” of the assets held in portfolios.
“The Pensionskassen should shift to new green solutions – companies are already active or moving to renewables, circular economy, sustainable agriculture and forestry,” Leuenberger said.
He said asset managers should use existing corporate databases to gather information on companies’ carbon footprints and business models with the goal to reducing the financing of greenhouse gas emissions by at least 30% compared to the global market index.
“Only far reaching ESG and climate benchmarks like the MSCI ESG Leaders Indexes or MSCI Low Carbon Target Indexes for shares, and their equivalents for fixed income, should be chosen for portfolio construction,” he said.