Engagement

The topic of sustainability is gaining momentum both domestically and internationally. Many financial institutions in Switzerland have signed the United Nations Principles for Responsible Investment.

Additionally, the fact that sustainable finance takes a long-term approach to investing aligns with the Geneva financial centre's focus on preserving assets for the next generation.

The financial centre sets an example

The global financial centre plays a key role in facilitating the implementation of the UN's 2030 Agenda (Sustainable Development Goals) and the Paris Climate Agreement. With CHF 7,89 billion in assets under management at the end of 2019, Switzerland ranks among the top financial centres in the world. These private, corporate, and pension fund assets give the Swiss financial industry significant leverage to make sustainable investing the industry norm.

The numbers published by Swiss Sustainable Finance (SSF) speak volumes: sustainable investments as a share of total assets under management grew 31% between 2019 and 2020 to CHF 1,520 billion.

The Geneva financial centre unanimously recognises the need to transition to a more resilient and sustainable economy. That means making sustainability part of business decisions at every level:

  • Reducing the environmental impact of buildings: Sustainability is a key priority for the financial centre, leading several Geneva banks to invest in new, carbon-neutral headquarters. This trend is likely to accelerate, with several large projects currently under construction or in planning.
  • Giving back to the community: Geneva banks and financial institutions boast a long philanthropic tradition rooted in the “Spirit of Geneva”. Their commitment to sustainability is evident in the range of causes they support, from the environment to health and social issues. Employees take an active part in corporate philanthropy and are encouraged to initiate charitable projects.

Although these corporate-led initiatives are both welcome and necessary, they go only so far. Where the financial industry can achieve real impact for a more sustainable economy is by mobilising the assets it manages on behalf of its clients, and by developing sustainable investment solutions and products.

 

 

 

An ambitious range of sustainable solutions and products

Sustainability comes into play in every area of finance, from investment selection to credits and financing, and from capital markets to securities emissions. Environmental, social and governance (ESG) criteria are at the heart of the sustainable investment strategies developed by banks and financial institutions. These strategies deliver profits for clients and benefits for society.

  • The best-in-class strategy consists in identifying the most sustainable and responsible companies in each sector.
  • Inclusion or integration strategies invest in companies with a proven social or environmental impact.
  • Impact investing directs capital to companies with products or services that aim to address social or environmental issues.
  • Exclusion strategies remove companies that fail to meet certain ESG criteria from investment portfolios.

The Swiss Sustainable Investment Market Study 2021, published by SSF, offers some interesting insights on these sustainable investing (SI) strategies. While all of the SI approaches grew in volume in 2020, the ESG engagement approach is now ranked second, up from third place last year. The category of impact investments still shows the highest growth rate of all SI approaches, at 70%.

The fact that investors are increasingly adopting the notion of impact becomes obvious when considering the actions that they take once norms violations are detected in investee firms. Previously, the most prominent action was to exclude the company from the investment universe. In 2020 the most common action for both asset managers and asset owners was to initiate engagement with the affected firm.

 

 

Why is exclusion not a silver bullet?

Active, engaged shareholders must become the norm. By using their vote, joining a coalition of investors or engaging in constructive dialogue with management, investors can push companies that fall short of expectations to change their behaviour and improve their impact.  

A good example is the Climate Action 100+ initiative, launched in December 2017, which currently has 500 members globally, representing more than USD 47 trillion in assets under management. The initiative aims to encourage major greenhouse gas emitting industries to take climate-mitigation measures.