Case Study: PUBLICA Federal Pension Fund 11.1. Shareholder Engagement: Experiences of a Swiss Investor

Case Study: PUBLICA Federal Pension Fund

The Pension Fund of the Swiss Confederation PUBLICA joins forces with other public sector investors for engagement and exclusion.

Information on the organisation

Type of organisation Pension fund Assets under management CHF37.8 billion (open and closed benefit schemes) (as of 31.12.2016) Approximate asset allocation (as of 31.12.2016) Open Benefit Schemes Closed Benefit Schemes CHF bonds 18% 41% Foreign currency bonds 41% 24% Swiss equities 3% 3% Global equities 27% 7% Real estate 6% 21% Others 5% 4%

Information on sustainable investment policy

Who initiated the drafting The initiative came from the Asset Management team, which of a sustainable investment had already been tracking the topic for a considerable time. In policy? 2014, the Investment Committee and subsequently PUBLICA’s Fund Commission discussed a holistic concept for “responsible investing” in detail. What was the main Generally speaking, a sustainable investment policy is seen as motivation for this step? part of a comprehensive risk management strategy designed to reduce financial risks. As a public sector pension fund, PUBLICA is also more exposed to public attention than other pension schemes, which was an extra incentive to develop the theme further and communicate it in a transparent manner. On top of that, there were occasional enquiries from beneficiaries about the sustainability policy. Even though PUBLICA had been actively exercising voting rights for Swiss shares for some years, holding dialogues with critical companies of concern and excluding individual firms, there was no well-documented foundation for responding to such customer queries. Exchanges with international peers underscored the assumption that the topic would become more important in the future. In addition, PUBLICA was seeking a suitable platform to also hold effective dialogues with foreign companies.

What are the main components/content of the sustainable investment policy?

How was the sustainable investment policy implemented?

What resources have been deployed for this?

What were your experiences with the policy implementation?

What were notable difficulties? The most important requirement for the sustainable investment policy was for it to be built on the basic pillars of the existing investment policy, which focuses on passive investments. The foundation of the sustainability analysis is based on existing environmental, social, and governance (ESG) standards reflected in applicable Swiss law and international agreements. PUBLICA commences a dialogue with companies in clear violation of the respective norms, with the aim to improve the situation. As a “last resort,” companies are put on an exclusion list and divested from the portfolio. In parallel, an ESG risk analysis process was introduced that facilitates the assessment of difficult to quantify risks. In order to implement this investment policy as effectively as possible, PUBLICA has joined forces with six other large institutional Swiss investors to form the Swiss Association for Responsible Investments (Schweizer Verein für verantwortungsbewusste Kapitalanlagen, SVVK-ASIR). This makes it more economical for all members to access the sustainability ratings of equity investments, engage in a dialogue with companies, and make recommendations for exclusions. It is left to individual organisations to implement more far-reaching sustainability strategies. PUBLICA publishes details of its own sustainability policy on its website. The development of the sustainable investment policy and the foundation of SVVK-ASIR were carried out with internal resources of participating members. In performing its activities, however, the Association works with external partners that provide research capacities and enter into a dialogue with companies on behalf of the Association. It took very little to persuade the Investment Committee to approve the concept as it aligns with PUBLICA’s own investment credo. Important partners signed up in a brief period of time for the SVVK-ASIR’s foundation, which only took just over a year. The collective sustainable investment policy is based on the “smallest common denominator.” Individual institutions then apply more far-reaching measures. It remains to be seen how consistently the individual members subsequently implement the jointly compiled exclusion list. Recently, pension funds have had to deal with many urgent and important issues, such as the financial crisis, the Swiss franc shock, and new regulatory requirements. Therefore, the parties responsible had limited capacity to simultaneously address sustainable investment themes during this period. Setting up the new Association at an affordable cost was another major challenge. Last but not least, there were also discussions on transparency: How frequently should engagement and exclusion be communicated? An initial exclusion list was published on the Association’s website in the beginning of March 2017.

What are the main benefits of addressing your sustainable investment policy as part of an Association? The exclusion of companies in breach of relevant sustainability norms along with additional engagement in the interests of insured members and pensioners strengthens the profile of PUBLICA and other involved investors. Combining forces with other players makes it possible to exercise shareholder rights more effectively abroad, since SVVK-ASIR carries more weight than an individual investor in the dialogue with companies. At the same time, associative collaboration reduces the costs of research activities. Decisions can also be communicated more effectively if made in conjunction with other like-minded parties.