Swiss pension funds invest more sustainably: strong incentives, but also obstacles

Swiss pension funds invest more sustainably: strong incentives, but also obstacles

Credit Suisse publishes its 2021 study on pension funds

30.11.2021

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Christian wicki
Head of Strategic Advice, Pension Funds & Corporate Investors
Credit Suisse (Suisse) AG
+41 44 332 32 18
[email protected]

Dr Jan Schüpbach
Political Economist & Thematic Economics
Credit Suisse AG
+41 44 333 77 36
[email protected]

Media relations
Credit Suisse AG
+41 844 33 88 44
[email protected]

Investing in accordance with ESG criteria has also become significantly more important for Swiss pension funds. This is shown by the Credit Suisse study on pension funds published today on the topic of sustainability. According to the survey of Swiss pension funds, a large and growing proportion of assets invested in developed countries can be qualified as sustainable. ESG criteria are still significantly under-represented when it comes to investing in emerging markets, but these investments are often used as a way to reduce risk and can also generate potential additional returns. Conviction, reputational risk and regulatory changes are the main motivations for sustainable investing. Pension funds say the main challenges lie in a persistent lack of transparency regarding ESG data, as well as the limited comparability of ESG criteria.

The survey of pension funds shows that a growing number of pension funds are increasingly taking ESG (environmental, social, governance) criteria into account in their investment activities. The proportion of pension funds investing more than 60% of their assets under management on a sustainable basis has increased from 11% three years ago to a current figure of 28%; according to the survey, this share will drop to almost half over the next three years (see figure). Swiss pension funds make most of their sustainable investments in Switzerland, Europe and North America. However, the desire to capture additional sources of return and reduce investment risks are among the factors that motivate pension funds to invest sustainably in emerging markets as well – especially China. The lack of transparency in terms of ESG ratings, as well as the risk of greenwashing, are seen as challenges when it comes to investing in emerging markets.

Across all regions, the highest proportion of sustainably invested assets is in equities. Ninety percent of respondents indicated that at least a quarter of their equity allocation in developed countries is implemented in a sustainable manner. Almost half of them had done so in emerging markets as well, and about a quarter in the case of China.

Strong motivations, but also obstacles on the road to sustainable investment
Conviction, reputational risk and regulatory changes are among the main motivations for investing in a sustainable manner. When asked about the obstacles that pension funds in general face when it comes to sustainable investments, around 80% of respondents cited a lack of transparency and limited comparability of ESG data. About half of them see a challenge in distinguishing between greenwashing and investments with a lasting positive impact with regard to ESG criteria. The unknown effect on performance, the costs associated with sustainable investment and the lack of resources are also listed as obstacles. It is therefore not surprising that many pension funds rely on external support for their sustainability efforts. This mainly involves using the services of banks and asset managers, followed by consultants and sustainable development agencies. In terms of engagement and voting, external advisers are used by 56% and 61% of funds, respectively.

ESG investments help reduce the risk of extreme losses
In the study, experts from Credit Suisse examine the performance of ESG investments against traditional benchmarks. The results indicate that the MSCI ESG indices offer excess returns, and that these are higher in emerging markets than in industrialized countries. The MSCI World ESG Index and MSCI Emerging Markets ESG Index generated annualized excess returns of 1% and 1.8%, respectively, over their benchmarks (MSCI AC World and MSCI Emerging Markets) over the years. past three years, and 0.1% and 2.8%, respectively, over the past decade. However, analyzes also show that these excess returns appear to decrease over time – although some stabilization has been observed in recent years. It is generally difficult to assess whether outperformance can be achieved through companies or indices with high ESG scores and depends on many empirical challenges. However, it is clear that the inclusion of ESG factors helps replicate some of the qualities associated with defensive traits. For example, higher ESG scores are associated with higher dividends, while ESG scores are negatively correlated with stock prices and stock volatility – and this has remained stable over a longer period. In particular, the inclusion of ESG scores helps reduce the likelihood of extreme risks materializing. ESG characteristics appear to be linked to better protection for companies in times of crisis and in the event of negative shock waves.

The Swiss pension funds study on the sustainability of Swiss pension funds is available in German and French at: credit-suisse.com/pensionskassenstudie

  1. Credit Suisse Pension Fund Study 2021
    The sixth edition of the Credit Suisse study on Swiss pension funds, first published in 2009, focuses on the topic of sustainability. The study also included a survey of Swiss pension funds, the data of which was collected by the market research institute LINK between early September and early October 2021. Ninety-three pension funds participated in the study. ‘investigation.

Swiss credit
Credit Suisse is one of the world’s leading providers of financial services. Our strategy is based on Credit Suisse’s main strengths: its leading position in wealth management, its specialized investment banking capabilities and its strong presence in our domestic market, Switzerland. We seek to follow a balanced approach to wealth management, aiming to capitalize on both the vast reservoir of wealth in mature markets as well as the significant growth in wealth in Asia-Pacific and other emerging markets, while also serving key developed markets with a focus on Switzerland. Credit Suisse employs approximately 49,950 people. The registered shares (CSGN) of Credit Suisse Group AG are listed in Switzerland and, in the form of American Depositary Shares (CS), in New York. Further information on Credit Suisse can be found at www.credit-suisse.com.

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This document was produced by and the opinions expressed are those of Credit Suisse at the time of writing and are subject to change. It has been prepared for informational purposes only and for the use of the recipient. It does not constitute an offer or invitation by or on behalf of Credit Suisse to anyone to buy or sell any security. Any reference to past performance is not necessarily a guide for the future. The information and analysis contained in this publication has been compiled or obtained from sources believed to be reliable, but Credit Suisse makes no representation as to its accuracy or completeness and accepts no responsibility for any loss resulting from the use. hereof.

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Credit Suisse Group AG published this content on November 30, 2021 and is solely responsible for the information it contains. Distributed by Public, unedited and unmodified, on November 30, 2021 09:20:09 AM UTC.

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