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FMA Report on the State of the Austrian Pensionskassen 2020: heavily diversified and dynamic investment strategy, critical exposure to climate risks

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While Austrian Pensionskassen (pension companies) by and large invest in investment funds, as a rule they follow a diversified and dynamic investment strategy. Since only around one tenth of the almost one million people involved in occupational retirement provision are already drawing a pension, Pensionskassen have a relatively low liquidity requirement and therefore are able to pursue higher risk/return profiles due to the long-term investment horizon. This allows them to make riskier investments such as “non-investment grade-rated bonds” as well as investments in unregulated markets. The investments are globally oriented and after hedging are held approximately 30% in foreign currencies. Investments in government debt are continuing to decrease further in light of the low interest environment. Dynamic investment strategies also explain the relatively high volatility of the performance of investments in upturn and downturn phases. On a long-term basis (since the system of this old-age provision) the investment performance is 5.2% per year on average. These are the findings of the FMA “Report on the State of the Austrian Pensionskassen 2020” (FMA Bericht 2020 zur Lage der österreichischen Pensionskassen), which was published today, which also has an analytical focus on sustainability risks, especially in relation to climate change as well as cyber risks and IT risks.

Sustainability risks are not to be underestimated

In light of the particular significance attached to the fight against climate change, the FMA has also carried out stress tests about the management of sustainability risks. These encompass environmental, social and governance risks (ESG factors). The FMA’s survey shows that all pension companies already take ESG factors into account in their business strategy, in particular with regard to the investment of assets. The results of the FMA’s asset screening however show that 31% of the assets of the Pensionskassen are invested in climate-relevant sectors, with the respective share of individual Pensionskassen varying between 29% to 39%. Almost half of this exposure relates to energy-intensive CO2-relevant operations. Since just under one third of assets are in climate-relevant investments, and further more approximately one fifth of employers that offer occupational retirement provision to their employees are allocated as climate-relative sectors, Pensionskassen as exposed to a climate risk that is not to be under-estimated.

IT and cybersecurity: strong dependence on external service providers

The FMA’s in-depth analyses of cyber and cloud security in “maturity level assessments” and surveys on cyber risks and IT structure have shown that pension funds are on the one side generally well prepared for threats to their IT security. On the other hand, they are very heavily dependent on external IT service providers, to which IT’s entire operational activity is frequently outsourced. They are relatively weak in terms of company’s internal emergency management. Cyber incidents predominantly relate to malware and ransomware, as well as data protection incidents. The full report can be found on the FMA website in German only.

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Regulator Information

Regulator Name: Financial Market Authority
Abbreviation: FMA
Jurisdiction: Austria

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