Publica, Switzerland’s largest public pension fund, has divested its equity holdings in coal companies because of the financial risks posed by their vulnerability to public policy measures to combat climate change.

The €34bn pension fund is a “Sammelstiftung”, an independent collective institution that manages the assets of 20 Swiss public pension schemes, seven of which are closed to new entrants.

Stefan Beiner, head of asset management at Publica, told IPE the pension fund has sold the totality of its equity stakes in coal companies, worth around CHF10m (€9.2m) at the time, on the back of a decision taken early this year in the context of its annual risk-management review process.

“Once a year, we look at risks that are difficult to quantify, which tend to be ESG risks, and last year we prioritised climate change,” he said.

The next step was for the pension fund to investigate this risk in three sectors – coal, gas and oil.

It did this first by assessing the likelihood of operating conditions changing in the form of a carbon tax, and in a second step by analysing the extent to which the companies in a given sector could adapt.

It concluded that, sooner or later, there will be a carbon tax, or any such tax already in effect will be increased.

“We don’t know when or by how much, but the probability is high that there will be one,” said Beiner.

It decided that oil and gas companies were “relatively broadly diversified and capable of adapting” but that this was not the case in the coal sector.

“The companies tend to be very focused, namely on coal extraction, and our view is that they will struggle if carbon taxes are increased,” said Beiner.

In a final step, the pension fund considered whether coal companies’ carbon risk was adequately priced in, and decided it was not.

“When it comes to coal companies, we don’t think the financial risks are compensated,” said Beiner. “The risks for oil and gas companies are manageable.”

A coal company, for the purposes of Publica’s exclusion policy, is defined as such based on the classification applied by MSCI for its GICS coal and consumable fuels sub-industry index.

Some 10 companies, mainly from emerging markets, were affected by Publica’s policy.

Asked about the roll-out of the policy to other asset classes, Beiner noted that the universe of effected companies was very small and that Publica did not own any bonds issued by them, so the question did not arise.

The exclusion of coal is hard-wired into Publica’s compliance system, he added, meaning that the entry into its universe of any company meeting the exclusion criterion is immediately flagged.   

For the time being, the decision to exclude investments in coal is borne as an active risk by Publica, although, in the medium term, the pension fund intends to adjust its customised benchmark to reflect its new policy on coal.

Publica is thought to be the first major Swiss pension fund to divest on climate change-related grounds, although local government schemes are coming under pressure to do so, too.

The municipal council of Carouge, a town in the canton of Geneva, for example, has recently unanimously voted in favour of divesting from fossil fuels, according to Swiss news service Le Courrier. 

The motion was put forward by Green party officials, emulating a move made by their counterparts at the city and canton of Geneva, according to the media report. 

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