Climate transition dialogue: SVVK-ASIR issues first «Deny Debt» recommendation

The Swiss Association for Responsible Investments (SVVK-ASIR) recommends that its members refrain from further investments in debt securities of seven companies. This marks the first time that SVVK-ASIR has issued a deny debt recommendation. The companies concerned – Chevron Corp., ExxonMobil Corp., Marathon Petroleum Corp., PBF Energy Inc., Phillips 66, Saudi Arabian Oil Co., and Valero Energy Corp. – all operate in the fossil fuel sector. The decision follows insufficient progress in the climate transition dialogue. Debt securities held are to be allowed to run off, while equities will continue to rely on the active exercise of voting rights.

SVVK-ASIR unites 12 major Swiss pension funds and insurance companies (svvk-asir.ch/en/about-us). Their objective is to ensure future pensions and benefits for their insured members, which, among other things, requires stable returns in the financial markets. The members are convinced that, in the long term, these are also contingent on safeguarding natural resources and– a stable environment. With this in mind, they advocate for adaptable, forward-looking companies that drive the necessary change step by step.

Prioritising dialogue

Engaging with companies is one of the most effective levers available to investors and is the key tool used by SVVK-ASIR. In line with the commitments made under the Paris Agreement, SVVK-ASIR and its external partners are calling on the most carbon-intensive companies in members’ investment portfolios to set credible targets for reducing emissions and to develop transparent strategies (Climate Stewardship Policy ). The expectation is not immediate transformation but the establishment of a robust road map and tangible progress – including in comparison with their peers.

A lack of progress leads to consequences

Engagement is most effective when it goes hand in hand with a willingness to take action where necessary. If no progress is made, SVVK-ASIR members may implement a range of escalation measures (Engagement and Exclusion Policy ). After several years of dialogue and a final review, SVVK-ASIR is now issuing a deny debt recommendation for seven companies (Chevron Corp., ExxonMobil Corp., Marathon Petroleum Corp., PBF Energy Inc., Phillips 66, Saudi Arabian Oil Co., and Valero Energy Corp.). This means that no new investments should be made in these companies’ debt securities and all investments currently held in the portfolio should be phased out over time.

This decision comes after several years in which no substantial progress has been made and where the willingness to engage in dialogue has remained limited. This recommendation will be reviewed regularly and can be reversed if progress is made.

Targeting future expansion

The deny debt approach aims to restrict the flow of new capital into the expansion of carbon-intensive business models. Financing structures vary across companies, but new investments are often supported by debt capital.

By limiting access to such financing, the approach can increase the cost of capital for new projects and reduce the economic attractiveness of further expansion. Empirical analyses suggest that, on average, around 64% of new oil production capacity is financed via bank loans and a further 26% via bonds. [1]

Focusing on debt securities therefore targets a key channel through which new projects are funded. At the same time, retaining equity holdings allows investors to maintain their influence. The complementary strategy to denying debt is therefore to engage in equity by actively exercising voting rights and supporting relevant proposals put forward by other investors. [2]

‘We don’t expect companies to transform overnight, but we do expect to see a credible road map for change. Companies that aren’t showing progress here are acting contrary to the agreed climate targets and increasing systemic risks, and we have to respond to that.’ Manuela Guillebeau, PUBLICA, SVVK-ASIR President

An overview of SVVK-ASIR's current recommendations for exclusion can be found on our website: https://svvk-asir.ch/en/exclusion-list

[1] Cojanu et al. (2019). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3376183

[2] Quigley et al. (2021). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3849513