E4S Center report reveals how the Swiss National Bank could reduce its portfolio’s carbon footprint


The study, led by Rüdiger Fahlenbrach and Eric Jondeau, describes the different paths that a large asset manager such as the SNB could take regarding carbon emission issues, and quantifies the impact of a more carbon conscious investment approach.

The integration of Environmental, Social and Governance criteria, and more specifically carbon emissions, into investment decisions has been a major topic of discussion among finance professionals, academics, and policy makers. Investors such as national banks, being some of the biggest financial institutions in the world, could have a significant role to play in putting pressure on companies and pushing them towards more sustainable practices.

Finance professors Rüdiger Fahlenbrach (EPFL) and Eric Jondeau (UNIL-HEC), both members of the Swiss Finance institute (SFI) and the Enterprise for Society Center (E4S), have studied this topic and analysed the SNB’s investments, with financial support from the E4S Center. In a study published today, they show that the Swiss National Bank could act to limit carbon emissions through better allocation of its investments.

The Swiss National Bank is indeed a major financial player, managing reserves of CHF 910 billion in December 2020, 23% of which is devoted to equity investments, including big oil companies, which are sources of greenhouse gases as recently outlined by the IPCC report on climate change. “The SNB has a huge portfolio of assets and we thought it would be interesting to see how it manages them, especially in terms of its carbon footprint. Its passive management is controversial and is repeatedly criticised by climate activists. The latter put forward their arguments; we wanted to take a neutral look with an academic approach” declared both professors in an interview with Le Temps.

The analysis, which focuses on the SNB’s U.S. equity portfolio – the data is available because the SNB has to disclose its holdings of all publicly listed U.S. companies – shows that a small number of companies in the portfolio have a particularly large environmental impact. In 2019, according to the report, 89 out of 2500 firms are responsible for 59% of the portfolio’s carbon emissions, while corresponding to only 5% of the market value of the SNB’s U.S. equity portfolio.

The two professors have analysed two exclusion strategies in order for the SNB to address environmental concerns, while not adversely affecting specific economic sectors. In the first one, sectoral exclusion, the SNB would exclude the same proportion of carbon intensive firms in each sector, and reinvest the proceeds in the best-in-class companies in that sector. However, this strategy would have little impact on total emissions, as most polluting companies are concentrated in a few sectors (utilities, energy, and materials).

In the second strategy, global exclusion with sectoral reinvestment, the SNB would exclude carbon-intensive firms overall and reinvest in companies with the lowest carbon intensity in the same sector. “Following this strategy and excluding the 89 most polluting firms and reinvesting the proceeds in the least polluting firms in the same sectors leads to a reduction of the total financed carbon emissions by 53% in 2019”, they say.

While both exclusion strategies would be very effective at greening the SNB’s portfolio and would have no meaningful impact on its overall performance, the impact on global carbon emissions would be limited, as the mentioned companies would continue to pollute.

According to Jondeau and Fahlenbrach, an even more effective approach would require putting pressure on firms rather than excluding them from its portfolio. “Collective action by investors can influence company policies. But investors can also be more active and demand that polluting companies clean up their production systems” they declare in Le Temps. Such active strategies might however require a new mandate for the SNB. Even though the SNB has decided in 2020 to “exclude shares and bonds of companies primarily active in the mining of coal, as there is a broad consensus in Switzerland in favor of phasing out coal”, climate objectives are still not clearly stated in its mandate.

With more pressure from environmental groups – some 1,500 climate activists showed up in front of the Swiss National Bank’s headquarters in Bern on August 6th – and following the alarm bell from scientists in the IPCC’s latest report, could change be on the horizon?

Read the interview in Le Temps

Read the report summary

Download full report