Swiss pension fund portfolios ‘4°C off Paris climate agreement’

On average, Swiss pension funds are off the mark when it comes to contributing to reducing global warming.

A government-backed survey of investment portfolios found that strategies were on average in line with the global climate warming by 6°C by the end of this century, rather than the 2°C maximum set by the Paris Agreement on climate change.

“Collectively, the financial flows underlying the corporate bonds and listed equity portfolios of Swiss pension funds are currently on a 6°C pathway,” a report on the survey stated.

However, the authors emphasised there were “significant differences” between portfolios of the participating pension funds.

In spring this year, Swiss government authorities offered the country’s pension funds and insurers an opportunity to test their equity and corporate bond portfolios to check their compatibility with this climate goal, as reported by IPE.

In total, 87 investors participated, among them 66 pension funds with CHF177bn (€151.8bn) in total assets – well over half of the total assets in the market.

The survey found two main factors contributing to this misalignment with the 2° goal. On the one hand, “companies in these portfolios are currently investing to increase production across all high-carbon technologies”, the report said.

In addition, “investment in low-carbon alternatives is lacking”, it said.

Researchers also noted a 5-15% increase in coal-fired power capacity scheduled for the next five years by the companies held by Swiss pension funds and insurers.

“This is primarily driven by investments in non-OECD countries,” the report stated.

Each participant was provided with an analysis of their portfolio providing them with a “basis for improving their alignment” and to “increase awareness” of possible climate-related risks to the portfolio.

The researchers said: “The analysis presented here can also potentially in the future be used by the Swiss government to report on article 2.1c of the Paris Agreement.”

This was a reference to the agreement’s aim to make financial flows “consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”.

The results chimed with a report issued earlier this year by asset manager Schroders, which warned that the world was on course for a long-term temperature rise of 4°C.