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Moral Headaches Lurk for SNB Tending $141 Billion Stock Hoard

Catherine Bosley
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Moral Headaches Lurk for SNB Tending $141 Billion Stock Hoard

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The Swiss National Bank may find it harder to stay “neutral’’ when it comes to its trove of foreign equities valued at an estimated 144 billion francs ($141 billion).

Sometimes labelled the world’s biggest hedge fund, the central bank has holdings in more than 6,000 companies including Facebook, Ferrari and Royal Dutch Shell. The hoard, built up over years of currency interventions to stem gains in the franc, has put responsibilities on the SNB that central bankers don’t tend to relish.

Its strategy is to track broad indexes, but that’s chafing against a global push to take environmental issues into consideration and pressure at home to stop investing in defense companies.

“When you’re managing the country’s money, it’s particularly tricky,” said Gary Smith of Barings Investment Institute. “I think most central banks will be trying to create situations where they don’t disadvantage themselves at the outset by excluding lots of stocks from the universe.”

If campaigners can’t get the SNB to divest stocks, another front is to push the institution to use the voting rights it exercises on European holdings to take a tougher stance of sustainability and good governance.

The next flash point for activists could come on Friday, when SNB President Thomas Jordan hosts the institution’s annual meeting in Bern -- a lightning rod for protesters in the past.

Environmental issues have been making headlines globally, from protests in London this month to the climate-change movement fronted by Swedish teenager Greta Thunberg. Norway’s $1 trillion sovereign wealth fund plans to divest some oil and gas exploration stocks and increase investment in renewables. To beef up its own environmental chops, the SNB last week joined a climate initiative spearheaded by Bank of England Governor Mark Carney.

The stock holdings are only a portion of the SNB’s 756 billion francs in foreign currency reserves. The lion’s share is parked in highly rated sovereign debt -- Bloomberg data suggest it regularly bought U.S. government bonds over the past decade.

It has invested in equities since 2005, mirroring indexes. A 2017 presentation by Governing Board Andrea Maechler showed holdings in countries including Mexico, Brazil, India, Indonesia as well as Turkey, Spain, France, and Germany.

Thanks to U.S. regulatory filings, the SNB’s ownership of heavyweights like Exxon Mobil, Google and Boeing is a matter of public record. It also holds stock in Fiat Chrysler and Rolls Royce, Norwegian energy company Equinor as well as in British retailers Marks & Spencer, Tesco and J. Sainsbury, according to data compiled by Bloomberg.

“One big challenge for central banks is the reputational risk,” said Elliot Hentov, head of policy research at State Street Global Advisors. It’s “heightened” in comparison with other asset managers, he said.

The SNB already doesn’t touch companies that make condemned weapons, seriously harm human rights and seriously damage the environment.

Some in Switzerland want their central bank to go farther, including banning investments in defense companies. The push for that has passed the threshold for a national vote, though a date hasn’t been set yet.

“Our balance sheet has to reflect the values of the Swiss population,” Maechler said last month, adding that tightening investment rules is up to politics. “For us, we cannot be standard setters.”

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Zoe Schneeweiss

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