Pension fund beneficiaries in Switzerland call for sustainable investment strategies

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1 Pension fund beneficiaries in Switzerland call for sustainable investment strategies Representative study by RobecoSAM AG in conjunction with gfs-zürich

2 Starting situation Sustainability is the most important challenge of our age. Megatrends associated with sustainability are changing our world and are having measurable effects on corporate sales and earnings. Long- term challenges such as scarcity of resources, demographic shifts and climate change are redefining social expectations, the political discourse, regulatory operating conditions and consequently the business environment as well as investment returns. Such challenges create new opportunities and risks which today s companies will have to tackle if they are to remain successful tomorrow. Those companies that exploit these challenges successfully and to their own advantage will probably also outperform their competitors in future. RobecoSAM is firmly convinced that the integration of sustainability criteria in traditional financial analysis generates additional insights into the management quality and the value adding potential of companies. This then enables us to identify better investment opportunities that can create long-term value for our clients. In short: a focus on sustainability facilitates investment decisions on the basis of im proved information. As the leading expert for sustainable financial investments, we are quick to recognise the opportunities & risks of long-term trends. Our vision is to continue developing sustainability investing and to set new standards. We use the central role of financial markets to promote sustainable business practices. Thanks to our focus on sus tainability investing, we offer investors and companies a unique and comprehensive range of financial products and services. Over 2,000 pension funds in Switzerland manage assets totalling around CHF 600 billion. As institutional investors they exert considerable influence on capital markets, and their opinions carry weight. For this reason RobecoSAM asked pension fund members in Switzerland whether they are interested in their pension fund s investment strategy, and whether they want their pension fund to pursue sustainable investment strategies 1. In addition, between May and June 2014 over 1,200 pension fund members from all Swiss language regions were surveyed by the market research institution gfs-zürich within the framework of a representative study. The questions posed were as follows: What expectations do insured persons have of their pension fund? What attitudes do insured persons have towards financially- relevant ESG factors associated with the investment process of their pension fund? If ESG factors are taken into account during the investment process, what are the consequences anticipated by the Swiss population? Which sustainability aspects are particularly important to the Swiss population? Results If the Swiss population is questioned about what expectations they have of a pension fund, then financial security and good returns are cited first and foremost. However, it is also apparent that the majority also support issues drawn from the environmental, social and corporate governance fields if they are explicitly asked about this. 1 In general terms, RobecoSAM understands sustainable investment strategies to mean all investments that systematically take account of financially relevant aspects in the environmental, social and governance fields (hence the acronym ESG) in conjunction with the investment process. ESG criteria describe, for example, the ability of a company to boost its resources efficiency, to safeguard health and safety at the workplace, or to operate risk and crisis management. 2

3 The study s most important findings are: Pension fund members in Switzerland are interested in knowing how and where the pension fund invests their money. An overwhelming majority (72 %) of insured persons want their investment fund to pursue investment strategies that are more sustainable. 73 % of questioned pension fund members are of the opinion that sustainable investment strategies lead to more prudent investment decisions that are more successful in the long term (79 %). Insured persons want to know how and where their pension fund assets are invested Pension fund members in Switzerland are keen to know how and where their assets are being invested. More than half of insured persons (52 %) want to know how their pension assets are being invested. However, this interest is not expressed to the same extent in all regions of Switzerland. In German-speaking Switzerland, for example, 56 % of respondents were interested to know about the companies and states in which their pension fund was investing pension assets, while in French-speaking Switzerland the respective figure was 45 %. In Italian-speaking Switzerland the figure was only 29 %. Question: Are you concerned about how and where, i.e. in which countries and companies, your pension fund assets are being invested? Total Language region: German-speaking French-speaking Italian-speaking Income: Up to 4000 CHF CHF CHF over CHF % 20% 40% 60% 80% 100% no broadly against broadly in favour yes I have not thought about it no answer 3

4 Pension funds should make investment strategies more sustainable 72% of pension fund members in Switzerland are of the opinion that their pension fund should also take financially-relevant ESG aspects into account when making investments. Here too, analysis of the various regions of the country and income groups shows a differentiated picture. 78% of insured persons in German-speaking Switzerland expressly stated that greater emphasis should be paid to ESG criteria when investing assets. This was the largest proportion. In French-speaking Switzerland this was supported by 65% of respondents. In Italian-speaking Switzerland, by contrast, only a minority of 39% expressed their support for this. It is important to note, however, that the proportion of those who relatively or strongly oppose taking ESG factors into account is distributed roughly equally throughout Switzerland, and accounts for only a very small percentage (German-speaking Switzerland: 5%, French- speaking: 6%, Italian-speaking: 6%). This means that while the level of approval for ESG factors is lower in Italian-speaking Switzerland, actual opposition is at broadly the same low level throughout Switzerland. In Italian-speaking Switzerland, however, there are significantly more people who are neither for, nor against taking account of ESG factors in conjunction with the investment process, and an even larger proportion who do not express any opinion on the matter. It is therefore possible to say that untapped communication potential exists here. Infographic: Support amongst the members of the PF in Switzerland for their pension funds taking account off financially relevant ESG aspects in their investments, with a breakdown according to the various language regions. From an income group perspective, the disparity is not so striking. 59 % of population groups with an income of less than CHF 4, per month expressed the view that pension funds should take sustainable investments into account. This was less marked than amongst higher income groups. 72% of population groups with a monthly income of over CHF 7, agreed that pension funds should also take financially-relevant ESG aspects into account when making investment decisions. 4

5 Question: How strongly do you agree with the following statement? My pension fund should also take financially-relevant environmental, social and governance aspects into account when making investment decisions. Total Language region: German-speaking French-speaking Italian-speaking Income: Up to 4000 CHF CHF CHF over CHF % 20% 40% 60% 80% 100% certainly not broadly against neither nor broadly in favour under all circumstances don t know/no answer Sustainable investments lead to more prudent and better investment decisions It was important to 76 % of respondents that in overall terms their pension fund analyses the investment objects more thoroughly thanks to detailed assessments based on ESG criteria. 73 % of questioned pension fund members are moreover of the opinion that sustainable investment strategies lead to more circumspect and better (79 %) investment decisions. These statements were supported to a broadly similar extent by all population groups. Question: How strongly do you agree with the following statement? Taking account of financially-relevant environmental, social and governance aspects encourages pension funds Take more circumspect investment decisions Take better long-term investment decisions % 20% 40% 60% 80% 100% certainly not broadly against neither nor broadly in favour under all circumstancea don t know/no answer 5

6 Investment preferences of pension fund members in Switzerland When questioned about their specific investment preferences for their own pension assets and a sustainable investment strategy, the study respondents named specific sectors and topics. According to the survey, an investment fund should invest in companies that offer solutions to global challenges such as: ( % of respondents that would like to see investments that address this topic) 75 % Water scarcity 74 % Food scarcity 69 % Energy shortages 63 % Availability of raw materials According to the survey, an investment fund should invest in companies that offer solutions to global challenges such as: (% of respondents would like to see investments made in this topic) Water scarcity Food scarcity Energy shortages Availability of raw materials 75% 74% 69% 63% By contrast, pension fund members were of the view that no investments should be made in the following states, sectors and companies: ( % of the respondents that wish to avoid the following investments) 86 % states that violate human rights 85 % generally controversial sectors 84 % companies that disregard worker safety 83 % companies that disregard environmental protection guidelines 76 % companies that disregard guidelines relating to shareholder and ownership rights Pension fund members were of the view that no investments should be made in the following states, sectors and companies: (% of the respondents oppose investments in such states) 86% 85% 84% 83% 76% states that violate human rights generally controversial sectors companies that disregard worker safety companies that disregard environmental protection guidelines companies that disregard guidelines relating to shareholder and ownership rights 82% of respondents are moreover of the view that pension funds also fulfil their social responsibilities by taking the above-specified investment strategies into account. 6

7 It is essentially the case that the Swiss population supports ESG factors. However, integration of these factors in the investment process is not important to everyone to the same extent. Around one third (27 %) of respondents support ESG factors only if they do not have a negative impact on their returns. However, 40% of all respondents are prepared to forego a part of their returns if in return ESG factors are made part of the investment process. One fifth would even relinquish half or more of their returns, while a further 15 % of all respondents would be willing to accept a yield reduction of up to half if ESG factors were made part of the investment process. Question: What level of yield reduction would you be willing to accept if sustainable aspects were to be made part of the investment strategy? Take ESG factors into account: Take ESG factors into account, even if this reduces the returns: How much yield reduction would be acceptable: neutral 19 5 no yes 72 no Don t know/no answer yes Half or more of the returns Don t know/no answer Less than half of the returns In short, it is important to note that making ESG factors part of the investment process enjoys considerable support throughout the entire Swiss population, and that this is explicitly opposed by only a very small percentage. This now raises the question of what value the Swiss population places on making environmental, social and governance aspects part of the investment process. Summary In overall terms, ESG factors in pension fund investment processes are strongly welcomed in Switzerland. When specifically asked about this topic, it was apparent that this was important to respondents, while only a small number expressed opposition. However, when asked open questions without reference to ESG factors, only a very few aspects were cited in this direction. This shows that the topic is masked by concerns about financial security and pension protection. In order to win the hearts and minds of the sceptics in the Swiss population for the integration of ESG factors in pension fund investment processes, it will be necessary to refute the argument that a sustainable strategy has a negative impact on yields. 7

8 For Michael Baldinger, CEO of RobecoSAM, the remit issued by insured persons to their pension funds is clear: «72% of questioned pension fund members in Switzerland want their pension fund to take financially-relevant ESG aspects into account when making investment decisions. In addition, pension fund members are firmly convinced that taking ESG criteria into account leads to more circumspect investment decisions that are better in the long term. We have shared this view ever since our company was founded, and strive to create corresponding investment solutions in partnership with pension funds.» No warranty This publication is derived from sources believed to be accurate and reliable, but neither its accuracy nor completeness is guaranteed. The material and information in this publication are provided "as is" and without warranties of any kind, either expressed or implied. RobecoSAM AG and its related, affiliated and subsidiary companies disclaim all warranties, expressed or implied, including, but not limited to, implied warranties of merchantability and fitness for a particular purpose. Any opinions and views in this publication reflect the current judgment of the authors and may change without notice. It is each reader's responsibility to evaluate the accuracy, completeness and usefulness of any opinions, advice, services or other information provided in this publication. Limitation of liability All information contained in this publication is distributed with the understanding that the authors, publishers and distributors are not rendering legal, accounting or other professional advice or opinions on specific facts or matters and accordingly assume no liability whatsoever in connection with its use. In no event shall RobecoSAM AG and its related, affiliated and subsidiary companies be liable for any direct, indirect, special, incidental or consequential damages arising out of the use of any opinion or information expressly or implicitly contained in this publication. Copyright Unless otherwise noted, text, images and layout of this publication are the exclusive property of RobecoSAM AG and/or its related, affiliated and subsidiary companies and may not be copied or distributed, in whole or in part, without the express written consent of RobecoSAM AG or its related, affiliated and subsidiary companies. No Offer The information and opinions contained in this publication constitutes neither a solicitation, nor a recommendation, nor an offer to buy or sell investment instruments or other services, or to engage in any other kind of transaction. The information described in this publication is not directed to persons in any jurisdiction where the provision of such information would run counter to local laws and regulation RobecoSAM AG 8