RI Interview: Swiss government pension fund Publica’s CEO Stohler on ESG, PRI

Face-to-face with the head of leading Swiss pension fund

So far in Switzerland, just three of the country’s 2,500 pension funds – which command assets of CHF550bn (€446bn) – have signed up to Principles for Responsible Investment (PRI).

This is surprising considering that responsible investment has very much taken root – how else to explain the success of Ethos, the pension fund-backed proxy firm that is a leading authority on Swiss corporate governance.

The reasons the PRI hasn’t broken through in Switzerland are in reality somewhat mundane. One is that many schemes have never heard of the PRI or would fail to see the usefulness of this international credential. Another reason is simply that some funds haven’t made up their minds yet about whether to sign up.

One of these is Publica, a CHF35bn giant that insures around 59,000 people, most of them government employees.

“We will take a look at the principles and discuss them,” said Dieter Stohler, Publica’s chief executive, who spoke to Responsible Investor over lunch in Zurich. “But since we already are a sustainable investor, we have to be sure that there is an added value.” The PRI could answer this by pointing out two immediate benefits. First, Publica, little known outside of Switzerland, would join the international club of big-name responsible investors. Second, Publica could serve as an important role model for other Swiss schemes wanting to do more in responsible investment.

Even without the PRI, Publica is already very much a model. A big equity investor (one-third of total assets), it regularly votes at annual general meetings (AGMs) of the companies it invests in.

It uses recommendations provided by the Corporate Governance Agency Switzerland (CGAS), which like its larger rival Ethos is a frequent opponent of excessive executive pay.

Stohler said that while voting at AGMs sends an important signal to companies, Publica prefers to engage with them on ESG behind the scenes.Engagement, he believes, is a better way of promoting sustainability among companies than outright exclusion or reliance on a best-in-class strategy.

“The investor shouldn’t make the mistake of believing that he or she can best judge a company’s sustainability,” he said, recalling the example of BP: “For years BP was praised for its environmental record and got high marks for sustainability. Then came the oil spill of 2010 and the company’s true colours were revealed.”

He added: “We at Publica can’t in any case reallocate just for the sake of sustainability. That would contradict our investment principles of diversification, liquidity and decent returns.”

Still, it is not the case that Publica never resorts to exclusion in the interest of responsible investing.

For its commodities portfolio, which accounts for 6% of assets, the scheme has ruled out trading in foodstuffs due to fears that it may exacerbate world hunger. It also passes over hedge funds owing to what it perceives as a lack of transparency on fees and business model.

Publica’s commitment to sustainability is further evidenced in its real estate investments, which make up 5% of assets and all of which are direct holdings in Switzerland. “Regarding new buildings we own or those that are renovated, we always insist that they adhere to high energy efficiency standards and that the work is done in an environmentally friendly way,” Stohler remarked. The remaining 56% of assets is split between government and corporate debt.

On renewables, Stohler, who took over at the start of 2012, remarked: “I personally believe that renewables in Europe will be a booming industry, but as Publica does not have a sector-specific focus, we haven’t been active in this area.”

But this could change if renewable firms are included in the indices in which Publica invests. The scheme would also consider directly investing in renewable energy, but only if the asset enabled it to live up to its investment principles. Stohler warns that, in any case, investors should be aware of the political risks associated with renewables – for example the sudden slashing of subsidies – and the fact that they are mostly illiquid.