Swiss pension funds plan to use heating systems powered by renewable energy sources in the next decade in a bid to achieve their climate goals, according to a report by think tank 2° Investing Initiative (2DII) and consulting firm Wüest Partner.
The report, drafted with the support of the Swiss Federal Office for the Environment (FOEN), summarises the results of the PACTA 2020 test that assess the progress of Swiss financial institutions towards meeting the goals set by the Paris Agreement.
It has added real estate and mortgage portfolios on top of listed equity and corporate bonds compared to the first assessment in 2017. It has combined quantitative analysis of portfolio alignment with a qualitative survey on existing climate strategies.
According to the report, pension funds will power over 300 buildings currently using oil or gas with renewable energies.
This corresponds to 20% of the buildings directly held by pension funds and heated with oil, and 10% of the buildings currently heated with gas. Pension funds plan to reduce CO2 emissions by around 20% by 2030 by renovating old buildings.
Almost 80% of the pension funds’ buildings tested is of “good” data quality. In total, over 23,000 buildings were submitted to PACTA 2020 for analysis, with the pension funds accounting for the largest share of 43% of all portfolios.
The share of exposure to renewables in the portfolio of financial institutions, including pension funds, is currently still low, making up at most 15% of the technology mix in the aggregate portfolios.
Pension funds hold a significant share in hydropower with regards to listed equity portfolios.
The majority of pension funds and insurance companies have increased their exposure to low-carbon technologies in the power and automotive sector from 2017 to 2020, the report added, but the progress is still fragmented.
Pension funds are set to increase holdings in companies that generate electricity from coal power, in particular in equity portfolios.
Holdings in the coal power sector in an aggregate listed equity portfolio of pension funds are located in China (33%) and India (20%), according to the report.
Overall, the report noted, financial institutions undertook an increasing number of actions to mitigate negative consequences on climate, but coal mining and oil extraction has continued to expand, pointing at disconnections between climate actions and portfolio exposure.
Portfolio realignments fall short of defining the real impact of investments, it added.
For example, financial institutions in Switzerland reduced exposure to coal power in their listed equity portfolios by about 15-20%, but the companies in the portfolios increased their installed capacity by 50%.
The report concluded that Swiss financial institutions are still not aligned with the goals of the Paris Agreement.
In total, 179 financial institutions submitted their portfolios for analysis to the PACTA 2020 climate compatibility test – up from 79 in 2017 – including 106 pension funds, 24 insurers, 31 banks and 14 asset managers. Assets under management for the Pensionfunds taking the test stood at CHF876bn (€806.7bn).