Supporting PKZH in assessing the financial impact of an ESG exclusion policy using PEARL

PKZH has an exclusion policy covering different aspects like violations of the UN Global Compact, controversial weapons as well as coal and fracking. The exclusions are reflected in customized benchmarks for the relevant external stock and corporate bond mandates. PKZH seeks to understand how the different elements of its exclusion policy impact total fund performance.

To achieve this, PKZH needed to obtain the necessary benchmark data and modify the fund and benchmark structures across:

1. Strategic policy benchmarks at the total fund level  
2. Blended benchmarks at the asset class and sub-asset class levels  
3. Manager-specific benchmarks at the mandate level

Benchmark and fund structure adjustments in response to PKZH’s ESG exclusion policy 

The Investment Performance team translated this policy into practice using PEARL by creating a new benchmark structure that applied the exclusion specific levels of PKZH’s fund structure, resulting in each portfolio manager being assigned a specific benchmark.

This involved integrating a large volume of additional indices, requiring robust and complete data from PKZH’s providers, Rimes and MSCI. By leveraging PEARL’s workflow, which includes built-in data checks and integrated ETL tooling, the team was able to readily generate reliable analytics and deliver new reporting that reflects the benchmark and fund structure adjustments.

Together, this ensured that the impact of exclusions at each layer of the investment decision process could be measured against an appropriate benchmark incorporating the exclusion, enabling an overall comparison with total fund performance both before and after the policy’s implementation.

Measuring the performance impact of PKZH’s ESG’s commitments 

Following the successful integration of the ESG exclusion policy into PEARL, the team was able to provide PKZH with performance reports that clearly isolate the impact of these exclusions on active investment management results. It further demonstrates how the policy supports PKZH’s alignment with its client’s (the City of Zurich’s) sustainability priorities, while quantifying its impact on financial performance. This enhances transparency and provides measurable evidence that the exclusions contribute to both ESG objectives and investment results.

Jürg Tobler, CIO of PKZH commented: “The flexibility of PEARL is key to us in understanding how our exclusion policy affects the fund’s performance. The detailed reports available in PEARL allow us to assess and change, if needed, our policy.