ESG ratings as a guide for pension funds

Seizing opportunities with the Pension Fund Index

For some time now, Swiss pension funds have been able to benefit from a public service from Credit Suisse – namely the Credit Suisse Swiss Pension Fund Index (CS PFI), for which Credit Suisse Asset Servicing is responsible.

The Pension Fund Index has now become a sought-after and frequently cited report for benchmarking purposes. Thanks to the data, pension funds can better navigate future challenges, including with regard to sustainability. As a result, Credit Suisse Asset Servicing has, for the first time, analyzed how sustainable Swiss pension funds are when it comes to investing their money. To do so, it examined the equity and bond investments of Swiss pension funds.

Sustainability analyses are becoming increasingly important

Interest in ESG (environmental, social, and governance) criteria has risen sharply among pension funds. What used to be a niche topic has now become mainstream. "In order to meet this current need, we have started measuring and analyzing ESG KPIs," explains Markus Grimm, expert in investment analysis for Swiss pension funds at Credit Suisse. The ESG ratings for asset allocation are based on data from independent rating provider MSCI. According to Markus Grimm, this enables pension funds to also see how other market participants handle ESG investments.

Swiss pension funds need to catch up

The Pension Fund Index shows that most pension funds still have potential for development in terms of sustainability. Based on the MSCI ESG rating, the index indicates that the asset allocations of pension funds are still fairly average in terms of sustainability.

If you also factor in the CO₂ footprint, i.e. the asset allocation by weighted average carbon intensity (MSCI WACI), then most pension funds are also in the average range. However, a clear trend toward more sustainable portfolio structuring can be observed overall. 

Analysis options could lead to more ESG

By and large, the average valuation of all pension funds has not changed significantly over the past year and a half. However, some pension funds have been dealing with the topic of ESG for some time now and have already made strategy and benchmark adjustments, as well as targeted reallocations. Others are only now beginning to look at this more closely.

Among other factors, the trend toward more sustainability is likely due to the comparatively strong return-to-risk ratio of sustainable investments in recent years. "We assume that, through the possibility of measuring ESG KPIs, we are taking an important step toward sustainability in pension fund investments," says Markus Grimm.