ESG products are too expensive and their targets are too vague, according to a poll of Swiss pension funds.
In addition, investors often had to pay extra fees for specialist expertise for environmental, social and corporate governance (ESG) investing, consultancy group Complementa found.
The company’s latest risk “check up” survey of Swiss Pensionskassen reported that, regardless of whether respondents had exposure to sustainable investments, 60% agreed that the costs of specialised products had put them off investing in the sector.
More than half (57%) cited the need for additional expert know-how as a detractor.
Complementa questioned 97 pension funds with total assets of CHF183bn (€160.9bn).
The main negative factors cited by the Pensionskassen as discouraging them from sustainable investing were the randomness of ESG-related targets (75%) and lack of measurability of targets (72%).
Only 35% agreed that bad performance might be a reason not to include ESG products in their portfolio. More than half of Pensionskassen thought ESG could help achieve higher performance over the long run and reduce risks.
Despite their concerns, almost 80% of the focus group denied that sustainability was just a passing trend.
Given the “limited resources” of pension funds, Complementa said it was “surprised” to find 79% of participants agreeing that ESG was becoming more of a topic for smaller Pensionskassen as well.
The survey confirmed recent findings by the lobby group Swiss Sustainable Finance, which reported a major increase in the inclusion of ESG products and approaches in Swiss institutional portfolios.
In the Complementa survey, 80% of participants agreed it made sense to add sustainable investments to make a difference for society as well as the environment.
Asked which of the three factors in ESG investing was the most relevant, “governance” received the highest marks, followed by “environment” and “social”.
Most of the surveyed Pensionskassen added sustainable investments as single products or funds to their portfolio.
Over the next few years many pension funds want to increase their exposure, make their first foray into sustainability or at least begin to research ESG, Complementa reported.
The respondents agreed that considering sustainability was part of their fiduciary duty under the BVG law guiding the Swiss second pillar – but they did not see it as their fiduciary duty to actually invest in sustainable products.