Nuclear research centre CERN’s €3.2bn pension fund embraces sustainable investing

Scheme avoids short-selling and excludes stocks on ethical grounds.

The CHF3.9bn (€3.2bn) pension fund for the European Organisation for Nuclear Research (CERN) is reinventing itself as a sustainable investor, taking such measures as eschewing short-selling strategies, excluding stocks on ethical grounds and requiring that its asset managers contribute to charity. CERN is most notably known as the home of the Large Hadron Collider (LHC) a gigantic scientific instrument that spans the border between Switzerland and France about 100m underground and used by physicists to study the smallest known particles. Just three years ago, the organisation’s pension scheme was foundering after losing 20% of its assets amid the equity market crash of 2008. The fund had to be recapitalised and its investment strategy overhauled. After taking over as CEO in early 2010, Théodore Economou cut the scheme’s equity exposure from as much as 60% in 2008 to around 30% of assets. For the sake of diversification, allocations to alternatives and real estate were raised to 30%, and the cash share went up to 10%. Bonds make up the remaining 30%. The restructuring, along with CHF61m each year from its sponsors, has helped keep the scheme’s funding ratio from falling further. It has stabilised at around 70% of liabilities.In terms of sustainability, CERN’s pension fund has asked its managers to avoid short selling of stocks. “We do not see the need to be involved in this, as it can be unproductive,” said Economou. “We decided there were other ways to preserving our capital than short-selling. This can be done by raising the cash portion or investing in indices.”
Another move was the exclusion of certain sectors for stocks. “There are three industries that we don’t invest in because we feel that they have a negative societal impact: tobacco, alcohol and gambling,” Economou said. CERN’s pension fund further requires that its managers donate a portion of their profits to charities that have to do with children, health and welfare. But the scheme does not want to stop there. According to its CEO, the fund is considering a green renovation of a complex of 500 apartments that it owns in Geneva. “One idea is to install solar panels incorporating technology developed at CERN to heat the water for the buildings. They would produce so much hot water that some of it would feed back into the city’s water works,” he said. The CERN pension fund is also considering signing up to the UN’s Principles of Responsible Investing (UN PRI).