How sustainability is incorporated into Swisscanto index funds

Interest in sustainable investment has grown significantly in recent years. More and more investors want to invest in a sustainable way as well as achieving a return on their assets.

But how can sustainability be implemented in an indexed portfolio? One answer to this question is provided by the Swisscanto Index Funds Responsible, which are managed by the Asset Management of Zürcher Kantonalbank.

Why is sustainability important?

From an investment perspective, long-term economic growth seems to be the key. However, this also raises the question of the consequences for our environment. This growth has its downsides: we consume more resources and produce more waste and greenhouse gases than our planet can sustain in the long term.

Wherever there are risks, opportunities arise as well - sustainable development has become established as a structural topic. Companies that take environmental, social and governance (ESG) issues seriously should have a competitive advantage. In our opinion, they are better equipped to meet future challenges and offer sustainable investment opportunities in the long term.

Swisscanto Index Funds Responsible: How do the two worlds fit together?

Index funds are popular with some investors because, for example, they offer transparency, broad diversification and a low risk of deviation. But how can this be combined with sustainability? The independent approach of the Swisscanto Index Funds Responsible (see box below) combines sustainable criteria with the advantages of traditional index funds.

Sustainable approach in three steps

The Swisscanto Index Funds Responsible use traditional indices such as the MSCI World equity index or the Swiss SMI benchmark index as a reference. This ensures a high degree of transparency for investors. We then filter the traditional indices on the basis of sustainable criteria, addressing the following questions in three steps.

1. How do we avoid controversy in the Index Funds Responsible?

Companies involved in controversial practices such as exploitative child labour or the production of war weapons are excluded. Exclusion criteria also apply to companies with more than 5% of revenue from coal or coal reserves, as well as companies with activities in other business areas (such as the manufacture of controversial weapons).

2. How do we keep ESG laggards out of the Index Funds Responsible?

We have developed our own 'ESG score' to identify companies that perform less on sustainability than their peers. Such companies are removed from the portfolio.

3. How is the climate change taken into account?

The carbon intensity - i.e. the proportion of the company's turnover that causes emissions - of Swisscanto Index Funds Responsible is at least 15% lower than that of the respective traditional indices. In addition, the Asset Management of Zürcher Kantonalbank actively participates in shareholder votes and engages in dialogue with companies to promote sustainable practices.

Swisscanto Index Funds Responsible: Transparency is a priority

By optimising the portfolio and minimising the deviation (the so-called tracking error), we aim to track the traditional reference indices closely. In doing so, we strive to maintain transparency with respect to the standard market and at the same time offer investors a feeling of security.

The Index Funds Responsible have historically tracked their benchmark indices with minimal deviation. In most markets, they have even achieved a slight outperformance¹ (see chart below).

As close as possible to the standard index: Swiss Equities as an example

The Swisscanto Index Funds Responsible offer an opportunity to invest in sustainable indexed investments – without having to forgo the advantages of traditional index funds. With an experienced team and a self-developed methodology, we strive to take advantage of the opportunities offered by sustainable investing.

¹The index fund 'Swisscanto (CH) Index Equity Fund Switzerland Total Responsible FA CHF' has achieved a net performance of 6.07% over the last twelve months (as of 31. December 2024). The net performance over the last five years is 3.66% on an annualised basis.

Swisscanto Index Funds Responsible: Insights