1. Introduction

Below, we outline the methodology used to estimate the full portfolio of the Swiss National Bank (SNB), including both reported and estimated equity holdings, available here. In this update, we added a column that indicates whether the SNB is investing in a fossil fuel expansionist, using data from Urgewald‘s GOGEL and GCEL lists.

As of June 2024, the SNB held equity with an approximate value of 198 bn. USD.^[1] The available data on SNB’s investments is heavily dependent on the geographical location of the invested companies. Across nations and continents, institutional investors are not obliged to disclose in which companies they invest in, except in the United States (US) and partly in the United Kingdom (UK). Therefore, in principle, we should not be able to know in which equity SNB invests. However, based on the data and the information disclosed in the US and the UK, 76.3% of SNB’s equity portfolio is known in detail as of June 2024^[2], while 24.7% of the SNB equity portfolio remains undisclosed, which corresponds to roughly 46.8 Bn USD. Nevertheless, we are able to overcome this lack of transparency and estimate the undisclosed part of SNB’s equity portfolio, because the SNB invests passively by tracking broad market indices, see Weights in ‘MSCI ACWI’.

In the procedure section, we outline the steps used to estimate the undisclosed portion of the SNB’s equity portfolio and determine how much of the national bank’s investments are directed toward fossil fuel sectors. We then provide an overview of the background data we use to develop these estimates. In the SNB’s investment exclusions section, we list and source all the exclusion criteria followed by the SNB. We then dedicate section 5 and 6 to reviewing the estimates and providing potential sources of error. We conclude the document with a working example.

2. Procedure

For the estimation detailed in this methodology paper, we use as a reference the MSCI All Country World Index, hereafter MSCI ACWI, see WEIGHTS IN “iShares MSCI ACWI ETF” and Exclusion of futures on stock indices. Subsequently, for the known investments of the SNB (see Known equity investments of the SNB), we calculate the real weight in the SNB Portfolio per security. We adjust the weights because the ones provided by financial databases such as Refinitiv and S&P Capital IQ reflect only the reported equity, which amounts to 76.3% as of June 2024. We then calculate the ratio between the weight in the SNB equity portfolio and the weight in the world market index “MSCI ACWI” (if listed there).

In the next step, we take the average of these ratios which is 1.1 according to the filings in June, 2024. In order to estimate the undisclosed SNB investments, we multiply the average ratio by the weight of the undisclosed companies in MSCI ACWI. The product of this multiplication gives us an estimate of the percentage weight of the undisclosed companies in the SNB equity portfolio. In a final step, we multiply the estimated percentage weight of the undisclosed companies by the total value of SNB’s investments in equities as of June 2024. The product is an estimate of SNB’s investment in the company which we previously had no information about.

3. The Data

The data we use to estimate SNB’s undisclosed investments is split into weights in MSCI ACWI which we obtained from iShares MSCI ACWI ETF, and SNB’s known investments in equity obtained from the financial database Refinitiv. The weights and SNB’s investments are per June 30, 2024. We choose this data based on SNB’s publication of its equity-share in its foreign exchange reserves (published every quarter) as well as the last filings of disclosed investments.

3.1. Weights in Ishares MSCI ACWI

The SNB communicates the following regarding the management of its shares:

“Equities are managed on a purely passive basis, whereby broad market indices of advanced and emerging economies are replicated. Exchange rate and interest rate risks are managed using derivative instruments such as interest rate swaps, interest rate futures, forward foreign exchange transactions and foreign exchange options. In addition, futures on equity indices are used to manage the equity investments.^[3]

Combined with the information on which currencies the SNB invests in (see Currency Allocation of the SNB Foreign Exchange Reserves), we conclude that the SNB mainly tracks the MSCI ACWI or comparable indices of so-called industrialized and emerging countries. Due to a lack of data on the exact composition of MSCI ACWI as of June 30, 2024, the weights were taken from the corresponding ETF of BlackRock’s subsidiary iShares, iShares MSCI ACWI ETF.

3.2. Known equity investments of the SNB

Due to the reporting requirements by the U.S. Securities and Exchange Commission, and UK’s Company House, roughly 76.3% of SNB’s total equity investments are known, (SEC; document 13F)^[4]. What is known is the number of shares held by the SNB in the respective companies, their value at a given point in time^[5] and the percentage of the total SNB portfolio. The latter is central to the present estimation because this value is used to calculate the ratio between MSCI ACWI weighting and SNB portfolio. However, since it is calculated by Refinitiv, this stated value only refers to the percentage share of SNB equity investments in a single company in the known part of the total SNB equity portfolio. Because this known part comprises around 76.3% of the total SNB equity investments, the values calculated by Refinitiv must be multiplied by 0.763 to obtain the effective share of SNB equity investments in a single company in the total SNB equity portfolio.

3.3. Currency Allocation of the SNB Foreign Exchange Reserves

The SNB indicates which part of its foreign exchange reserves it invests in which currencies. It invests the majority of its foreign exchange reserves in the currencies of so- called industrialized countries and the share of so-called emerging markets accounts for only a very small proportion (see here). The latter are shown only as part of the “Other” category, which comprises just 8%.^[6] However, since such currencies only account for a small part of this ‘Other’ category,^[7] it can be assumed that the SNB holds only very few shares traded on stock exchanges in emerging markets^[8] (see Investments in companies traded on two stock exchanges (dual listed)). It is important to note that the stated currency allocation of the SNB refers to the total foreign exchange reserves including all asset classes such as bond holdings. However, because more than two-thirds of the MSCI ACWI or comparable indices are traded in USD, it can be assumed that the SNB also holds most of its equity investments in USD.

3.4. Share of the SNB’s equity investments

The SNB indicates the total share of its foreign currency reserves^[9] and the part invested in shares^[10]. Based on this we can calculate that the SNB invested around USD 198 bn. in shares as of June 30, 2024.

3.5. Fossil Fuel Expansionists Data

We use Urgewald‘s Global Oil and Gas Exit List (GOGEL) and Global Coal Exit List (GCEL) to determine whether a company is expanding into new fossil fuel reserves and is therefore considered fossil fuel expansionist.

4. SNB investment exclusions

The SNB lists a few criteria for companies in which it does not invest. For example, it writes that it deviates from full market coverage in two cases:

“First, owing to its special role as a central bank, the SNB refrains from investing in shares of systemically important banks worldwide. Second, the SNB is committed to respecting Switzerland’s fundamental standards and values in its investment policy. Consequently, it does not invest in either shares or bonds of companies whose products or production processes grossly violate values that are broadly accepted at a societal level.” ^[11]

Regarding the exclusion of systemically important banks worldwide, we excluded the list of banks compiled by the Financial Stability Board (FSB) which can be found here. Moreover, based on the reported holdings, we know that the SNB has a broader definition of banks with significant systematic importance, and their exclusion list includes more financial institutions than the thirty banks listed in the published document by FSB. This finding is based on an analysis of U.S. financial institutions, which we know the SNB does not invest in. Therefore, we excluded all financial institutions worldwide, except for insurance companies. With this approach, it is possible that we excluded some companies in which the SNB actually invests in.

By the latter, it means:

“SNB does not purchase securities issued by companies that seriously violate fundamental human rights, systematically cause severe environmental damage or are involved in the production of internationally condemned weapons.”^[12]

The SNB understands companies that “seriously violate fundamental human rights and systematically cause serious environmental damage” to be:

“The criterion of systematically causing severe environmental damage if they, for example, systematically pollute waterways or the countryside, or seriously damage biodiversity through their production operations.”

And adds that this also includes:

“companies with a business model primarily based on the mining of coal for energy production, as there is a broad consensus in Switzerland in favor of phasing out coal.”

Because it was not clear which companies exactly SNB excludes we used as a reference the exclusion list of SVVK-ASIR. This is because SVVK’s criteria are almost identical to those of the SNB and the exclusion list is publicly available here. Based on the SNB’s known investments in U.S. companies, we observed that the SNB uses a slightly different exclusion list. However, it was not possible for us to track this and subsequently apply it to SNB investments outside of U.S. exchanges. Therefore, it is possible that we have made investment estimates for weapons manufacturers in which the SNB does not invest in.  Finally the SNB’s non-investment in CHF is not an actual exclusion criterion. However, and combined with the exclusion of systemically important banks, these two exclusions have the greatest influence on the SNB’s passive tracking of the world market index of MSCI ACWI. Systemically Important Banks make up 3.4% of the MSCI ACWI. While Systemically Important Banks, in the broader sense we suspect the SNB uses, make up 9.3% of the same index. Swiss companies make up around 2.4% of the MSCI ACWI, as of June 30, 2024. The other exclusions have much smaller impacts. Arguably, S&P Global Lockheed Martin (0.1% of MSCI ACWI as of June 30, 2024) is the biggest exclusions for ESG considerations. In conclusion, we estimate that the SNB excludes about 13% of the companies (weighted) in MSCI ACWI.

5. Review of the Estimates

5.1. Estimates VS Known SNB Investments

Our estimates match the known SNB investment amounts with a mean absolute error of USD 3.4 million. In other words, when we estimate reported companies using the method here, we find that the estimates deviate +/- USD 3.4 million on average, from the reported amounts. The deviated amounts differ greatly based on how much the SNB invests in the reported company, with higher investments yielding higher errors. The mean absolute percentage error is 6%, suggesting that our estimates are off by 6% of the real investment value, on average.

5.2. Comparison of the Estimated Total with SNB’s Total Equity Investments

The estimated equity investments of the SNB sums up to around USD 218.7 billion. We then remove the estimated 13% excluded companies from the MSCI ACWI (weighted; see SNB investment exclusions) which is roughly USD 26.8 billion. This leaves us with roughly USD 191.9 billion. As a result, our estimates are around USD 7 billion too low overall and are therefore conservative.

6. Possible sources of error

6.1. Exclusion of futures on stock indices

The SNB writes that “Equities are managed on a purely passive basis”, but it also mentions that, in addition to tracking “broad market indices of industrialized and emerging economies”, it also uses “futures on equity indices”. These could not be considered and probably partly explain why the SNB slightly overweights or underweights individual companies compared to the MSCI World. This overweighting and underweighting can present a source of error in the estimation.

6.2. Exclusion of Broad Market Indices of Emerging Markets

The SNB invests a very small part of its equity investments in currencies of so-called emerging markets (see Currency Allocation of the SNB Foreign Exchange Reserves). As the All Country World Index ACWI was used as a reference for this estimate (see Weights in ‘MSCI ACWI’), investments in shares of such countries are included. However, we have seen that the SNB invests in more US companies than what is in the MSCI ACWI. This means there is no guarantee that the SNB is not investing in emerging markets companies that are not part of the MSCI ACWI. We expect these investments to be very minimal.

For example, a comparison of the world market index “MSCI World” and the combined index of industrialized and emerging countries MSCI ACWI^[13] shows that the difference in the weighting of companies from industrialized countries is minimal, especially in the case of higher weighted companies, and in the case of the combined index MSCI ACWI, the share of companies from so-called emerging countries is only 9%.

6.4. Investments in companies traded on two stock exchanges (dual listed)

Some companies choose to trade their shares on multiple stock exchanges. As a result, Russian companies, for example, often traded their shares on the London Stock Exchange until the invasion of Ukraine. Thus, the SNB, which primarily invests in currencies, can invest in Russian companies^[14] without necessarily having to hold them in rubles. For this reason, it is possible that the SNB holds more shares in companies from so-called emerging markets than suggested by the currency allocation (see Currency Allocation of the SNB Foreign Exchange Reserves). However, the different review mechanisms of this estimate (see Review of the estimates) show that this does not result in any substantial deviations.

7. Working Example

Since the SNB is a passive investor and tracks broad market indices, we know then that the national bank holds shares in TotalEnergies. SNB is not obliged to disclose investments in companies exchanged outside of the United States or registered in the UK. With the methodology laid out above, it is possible to estimate how much money the national bank is investing in a company such as TotalEnergies.

We first obtain the average ratio, 1.06, see Procedure. We multiply this average ratio by TotalEnergies’ weight in MSCI Index as of December 31, 2022.

And

Therefore, SNB’s Estimated Investments in TotalEnergies

Footnotes

^[1] As of June 30, 2024 “Total foreign currency reserves (in convertible foreign currencies)” found here; multiplied by proportion of shares in % (792,075*0.25).

^[2] 76.3% is the ratio between the sum of all known SNB investments acquired via Refinitiv and the total funds invested by the SNB in equities.

^[3] https://www.snb.ch/en/the-snb/mandates-goals/investment-assets/reserves-bonds; last accessed 16.10.24

^[4] In addition to SEC document 13F, there are corresponding reporting requirements in the UK for companies domiciled in the UK. This allows partial insight into SNB investments in UK companies. All other SNB investments are not known. The only exception is Orell Füssli AG, which is one-third owned by the SNB and prints banknotes on its behalf.

^[5] The reporting frequency depends on the stock exchange, but is approximately every 3 months.

^[6] https://www.snb.ch/en/the-snb/mandates-goals/investment-assets/reserves-bonds; the SNB states that only 8% is invested in currencies other than USD, EURO, YEN, BPOUND and Canadian Dollar (all the currencies of industrialized nations). For these 8%, in turn, the SNB also states that they are invested “mainly in AUD, CNY, HKD, DKK, KRW, SEK and SGD” and in addition in “small holdings of other currencies”. From this it is clear that only a very small part can be invested in emerging market currencies.

^[7] The only currencies mentioned are Chinese Yuans and South Korean Won, with Australian dollars listed first, for example.

^[8] For the definition of which countries are considered developed or emerging markets according to MSCI, see the corresponding MSCI World and MSCI World Emerging Markets factsheets.

^[9] As of June 30 , 2024, the SNB held USD 792 billion in foreign currency reserves. URL: https://data.snb.ch/en/topics/snb/cube/snbimfra; last accessed October16th, 2024

^[10] As of June 30, 2023, the SNB invested 25% of its total foreign currency reserves in equities. URL: https://www.snb.ch/en/iabout/assets/id/assets_reserves; last accessed October 16th, 2024

^[11] https://www.snb.ch/en/iabout/assets/id/qas_assets_1#t23 ; last accessed October16th, 2024

^[12] https://www.snb.ch/en/iabout/assets/id/qas_assets_1#t24 ; accessed October 16th, 2024

^[13] https://www.msci.com/documents/10199/8d97d244-4685-4200-a24c-3e2942e3adeb ; last accessed October 16th, 2024.

^[14] https://www.bluewin.ch/de/news/wirtschaft-boerse/snb-hat-bereits-anleihen-mit- russland-bezug-verkauft-1133715.html accessed April 1st, 2023