Responsible Investor

Nest - Swiss RI pension performance in action

After 25 years of solid returns, fund plans to increase risk and looks to private equity and hedge funds.

The debate about whether responsible investment can add value to pension fund investments meets its proof at the SFr650m (€390m) Zürich-based Nest scheme. The fund, an umbrella plan, started in 1983 when a group of small and medium-sized independent Swiss companies, mostly in the social work and life sciences sectors, united to invest contributions in a series of defined contribution funds. Significantly, since inception these funds have been run under strict SRI criteria. Felix Pfeifer, chief executive officer at Nest, says this translated at the time into negatives: no money for the arms industry or for companies operating in apartheid South Africa. Some negatives have stuck; the funds have never invested in nuclear power, for example. The SRI policy, he says, reflects the social orientation of the constituent companies and their wish to seek returns with a responsible ethic. Time and a changing political arena, Pfeifer says, have shifted investment priorities towards environmental protection and employee friendly companies. One constant, however, has been good performance. Pfeifer calculates that total assets have grown by almost 20% per annum, including healthy returns in recent years. In 2003, the fund’s aggregate returns were 10.7%, dipping slightly to 5% in 2004. By

2005 it was back up to 9.9% before dipping slightly to 6.9% in 2006. The number of members rose by 10% to approximately 8000 in the first half of 2007 alone and the fund now runs assets for about 1600 companies, which have broadened to include service sector and high tech companies. A similar fund, the Abendrot Foundation, runs SFr500m on an SRI basis for companies around the city of Basel.
Nest’s organisation is highly decentralized. An assembly of employers and employees decides on key issues such as board composition and investment principles. The employer, which makes a guaranteed pension contribution for employees under Swiss law chooses the DC fund they will invest their employees’ pensions in. Pfeifer says this implies a special responsibility on the side of the employer to ensure returns are sound. Unlike funds that allocate or screen a portion of their assets to the RI space, Nest benchmarks the funds it offers against its RI policy using the INrate system, a method it developed with Swiss SRI research group Infras. Pfeifer explains: “We developed our own sustainability ratings approach and ESG strategy in order to make it systematic. One significant aspect of this rating is that it judges the broad service to society that a company

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