Swiss scheme assets expected to drop by 2035 if fossil investments kept

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Swiss pension funds will experience on average a 10% loss in assets in the next 15 years if they continue to invest in fossil fuels and industries with high CO₂ emissions, according to a report by Climate Alliance, a group of civil society organizations.

Pension funds with an above-average share of foreign equities and bonds in their portfolios carrying high climate risks could see assets declining by 18%. The study predicted funding ratios to sink to 90% with assets falling by 10%, or 82% with assets declining by 18% in 2035.

Climate Alliance has calculated that the exposure to climate intensive industries leads also to a reduction of the level of pensions received by retirees of between 18% to 32%.The generation aged younger than 50 years old, which will retire from 2035, will be particularly hit by pension cuts, it said.

Only an increase in monthly contributions of insured persons and employers could avert a reduction of the level of pensions caused by allocations with negative climate impact.

Climate Alliance therefore is urging Swiss pension funds to “urgently act” to pull investments from fossil fuels and industries responsible for CO₂ emissions.

Methodology

Climate Alliance conducted the analysis based on data received from climate analytics firm Carbon Delta. It differentiated the pension funds investing a higher share of assets in climate-intensive equities, often emerging markets equities, or bonds in foreign currency, from the pension schemes with an overall higher share of equities and bonds that others.

It has divided investment portfolios in sub-categories to calculate climate risk for the “average portfolio” of Swiss pension funds, based on Carbon Delta’s risk values with regards to regulatory risks based on a 1.5°C scenario, and physical risks of an extreme weather scenario (AEW scenario).

Corporate bonds in foreign currency carry the highest risks with a 22% regulatory risks in relation to the 1.5°C scenario, and an extreme weather scenario risk of 9.8%.

Emerging market equities follow with a 11.8% regulatory risk and 6.9% extreme weather scenario risk. Swiss corporate bonds carry the lowest risk with 0.1% both for regulations and extreme weather. The risk on total assets of an average portfolio of Swiss pension funds is 10%.