Engagement

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 7,847 billion in assets under management at the end of 2022, 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: sustainability-related investments in Switzerland amounted to CHF 1,660 billion by the end of 2023.

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.

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.
• Climate-alignment refers to the reduction of the greenhouse gas emissions of a portfolio (i.e. of the issuers it contains) in line with global climate goals.
• Impact investing directs capital to companies with products or services that aim to address social or environmental issues.
• Sustainable thematic investment contributes to sustainable solutions, both in environmental or social topics.
• Exclusion strategies remove companies that fail to meet certain ESG criteria from investment portfolios.

The Swiss Sustainable Investment Market Study 2024, published by SSF, offers some interesting insights on these sustainable investing (SI) strategies. This year, there is a clear trend away from using one sustainable investment approach in isolation (11% of market players) and an increase in strategies using three or more sustainable investment approaches (77%).

Once again we see SI approaches applied across practically all asset classes, demonstrating that sustainability considerations play a role for both major asset classes and alternative assets. Equity (30,5%), corporate bonds (20,9%), sovereign bonds (14,1%) and real estate (11,5%) are the top asset classes.

Incentive rather than coercive regulation

Greenwashing can occur when investors' expectations for the sustainable financial products offered by banks do not match the actual characteristics of these products. To bridge the gap, there is a need for greater transparency (disclosure), in particular regarding the sustainable investment strategies, a systematic approach within the private client advisory process to define their ESG investment preferences, and relevant training for investment professionals and relationship managers. In other words, the term "greenwashing" refers to the practice of misleading clients about the sustainable characteristics of financial products and services.

The integrity of investment products and services is central to the Swiss financial centre. That is why the financial industry rejects any form of greenwashing and contributes to ensuring the credibility of the financial centre with their own measures.

In June 2022, the Swiss Bankers Association (SBA) published the "Guidelines for financial service providers on the inclusion of ESG preferences and ESG risks in investment advice and asset management". For its part, the Asset Management Association Switzerland (AMAS) published the "Self-regulation on transparency and disclosure for sustainability-related collective assets" in September 2022. These self-regulations have been in force since January 1,  2023 and September 30, 2023 respectively.

In December 2022, the Federal Council published its position paper on the prevention of greenwashing in financial market.  In order to comprehensively reflect the Federal Council's position, the existing AMAS and SBA versions were clarified and supplemented:
 

Self-regulation on transparency and disclosure for sustainability-related collective assets (AMAS, April 2024)
 

Guidelines for the financial service providers on the integration of ESG-preferences and ESG-risks and the prevention of greenwashing in investment advice and portfolio management (SBA, May 2024)

The core element of the further developed or newly drafted self-regulation is the definition of a uniform minimum standard under which conditions selected investment products and services may be labelled as sustainable. They will enter into force on 1 September 2024 with corresponding transition periods.

In June 2024, the Federal Council concluded that the further developed or newly drafted self-regulations of the Asset Management Association Switzerland and the Swiss Bankers Association adequately reflect its position on greenwashing prevention in the financial sector. Accordingly, it will refrain from introducing state regulation at ordinance level for the time being. "The self-regulatory provisions implement various aspects of the Federal Council's position. In particular, they implement requirements for the definition of sustainable investment objectives, the description of the sustainability approaches applied, accountability in this regard and the audit of implementation by an independent third party".

Harmonisation through international standards

It is not always easy for investors to identify the sustainable investments that will meet their expectations. Some standardisation of rules and definitions will make comparisons between investments more reliable.

The European Union (EU) adopted an Action Plan in 2018 and supplemented it in July 2021 with its new Sustainable Finance Strategy. In order to achieve its full impact, its implementation will have to focus on three objectives:

•     Strike a balance between the need for standardisation and minimising the negative effects of overly rigid regulation;
•     Promote transparency and in particular the fight against greenwashing;
•     Avoid disproportionate administrative burdens for companies.

In this exercise, Switzerland cannot ignore the regulatory processes underway in the EU, which remains our main trading partner. It will be up to Switzerland not to reinvent the wheel, but rather to draw inspiration from the European regulatory framework without imposing stricter rules than those in force in our neighbouring countries. Otherwise, our country would be putting itself at an unnecessary competitive disadvantage in a promising field.