Pension funds are not on a 1.5°C course with net zero by 2040, criticizes the Swiss Climate Alliance. It calls on pension funds, banks, insurance companies and real estate companies to put all buildings they own directly or indirectly finance on a path with ambition to net zero by 2040.
Swiss pension funds have considerable climate leverage with their investments in rental properties. They make these investments on behalf of the insured, that is, the vast majority of the population. About one-sixth of the rented space in Switzerland is directly owned by pension funds, the majority of which are CO2-intensive old buildings. They also invest funds in real estate funds of banks, insurance companies, and real estate companies, which in turn own ownership of rental space to a similar extent. They also carry out such financing abroad.
Pension funds also issue mortgages or invest in mortgage funds in Switzerland that finance private buildings. Within Switzerland’s bonds, they also finance, as a rule, the two Pfandbrief institutions that enable banks to issue mortgages in compliance with the law, as the Climate Alliance, an alliance of more than 150 civil society organizations, explains.
Climate Alliance calls for potential to be exploited
With its new “real estate’ rating, the Climate Alliance – in addition to its existing “financial assets’ rating – is calling on pension funds, banks, insurance companies and real estate companies to put all buildings they own directly or indirectly finance on a path towards net zero by 2040.
What is required is the exploitation of the potential of energetic refurbishment of the old stock, with optimal reduction of energy consumption and complete conversion to renewable energies for all its properties – far beyond the legal provisions. This includes maximizing photovoltaics, vigorously supporting e-mobility with e-charging stations and disbursement towards the best environmental and social standards for sustainable buildings.
New property rating to measure progress of pension funds
The Climate Alliance therefore assesses how comprehensively pension funds with a 1.5°C-compliant, science-based ambition are on their way to net zero in 2040: with their direct real estate ownership predominantly in Switzerland, with their indirect shares in real estate funds at home and abroad, as well as with a positive effect through the granting of low-interest green mortgages for energy upgrades and via further financing for green real estate.
The visionaries set the target
Indeed, according to the Climate Alliance, three-quarters of real-estate investments are delaying the necessary decarbonization path. More than 60% of the funds are thus largely in the hands of pension funds, which do not have a public real-estate sustainability strategy. Some are just beginning the process. Another 16% have implemented initial measures, but are lagging behind advanced peers.
Less than 1% of the investment volume is held by pension funds, which are certain to be net-zero in 2040, while also striving to act in a socially sustainable manner within their statutory mandate to generate returns, with sustainable rental rates and with collective thinking. “All these visionary pension funds are characterized by a legally compliant return for the payment of pensions. It is incomprehensible why this type of approach is not achievable in principle for all pension assets,” concludes the Climate Alliance.
