Banks and financial institutions have developed considerable expertise in structuring financial products that deliver attractive returns and meet sustainability standards. But the transition to more sustainable forms of investing doesn’t depend solely on the financial sector.
On the demand side, private and institutional investors have their part to play. To make it easier for them to choose sustainable investments, rules and definitions need to become more standardised. Second, training and education is key to maintaining the dynamism of the financial sector. Lastly, financial flows reflect what is happening in the economy more broadly. The challenge, therefore, is to promote a shared commitment and dialogue across the financial sector, government and civil society.
Private- and public-sector players are determined to facilitate a more sustainable and competitive Swiss financial centre by adopting a conducive regulatory framework. This was amply illustrated by the spectacular acceleration in June 2020 of efforts to clarify what this could look like.
In the space of a fortnight, several leading Swiss financial industry associations published important documents with the aim of positioning Switzerland as a leading global centre for sustainable finance. The Swiss Bankers Association (SBA) unveiled its Guideline for the Integration of ESG Considerations into the Advisory Process for Private Clients. The Asset Management Association Switzerland (AMAS) and SSF jointly published their Recommendations for Sustainable Asset Management. And the Federal Council adopted a set of Guidelines for Sustainable Development in the Financial Sector.
All these bodies agree on the following core principles and objectives: transparency, good governance, risk management (especially climate risk), the need for quality reporting, and the importance of training and education.
Implementing a sustainable investment strategy is not as simple as it seems. Investors face two main challenges:
Regulation should focus on incentives, not coercion
Regulation and taxation are two ways to create incentives that support the development of new sustainable financial products. Government can signal its support by adopting a favourable legal framework. On the tax side, stamp duty and withholding tax are a major obstacle to the development of sustainable finance, especially for institutional investors. The fact that these investors represent 79% of all sustainable investments in Switzerland (CHF 1.1 trillion at end of 2019) underlines the crucial importance of abolishing these taxes.
The need for common international standards
It can be difficult for investors to identify sustainable investments that meet their requirements. Standardising rules and definitions would make it easier to compare different products in terms of sustainability.
The European Union (EU) adopted a sustainability Action Plan in 2018. To be effective, this plan will have to do three things:
As part of this process, Switzerland should keep a close eye on regulations being developed by the European Union, still its main trading partner. Rather than reinvent the wheel, the Swiss government should align its regulatory framework as needed with the European one, and refrain from adopting more stringent rules than our neighbours. That would put us at a competitive disadvantage in a high-growth industry, for no good reason.
The Geneva financial centre owes its success in large part to its ability to attract the best talent. With a 13% share of the cantonal GDP and more than 35,000 jobs, the financial sector is a key player in the Geneva economy and labour market. Behind these numbers are the individuals whose expertise its success depends on. Their skills and knowledge need to be regularly updated to meet the needs of clients. Another priority for the financial centre is to ensure that the next generation acquire the skills they need to build a successful career. To recruit talented graduates, financial institutions must adopt business models that address their concerns.
Sustainable finance contributes significantly to the diversity of the Geneva financial centre and creates opportunities for current employees as well as young people entering the profession. Sustainability must be incorporated into educational programs at the secondary and university level, as well as in continuing and professional education.
As part of the revision of secondary professional education, modules on sustainable finance must be added to the Federal Certificate of Proficiency (CFC) in Commercial Business/Banking Sector. The Haute école de gestion de Genève (HEG) already offers a Certificate of Advanced Studies (CAS) in Sustainable Finance. The University of Geneva has offered a course on sustainable finance since 2011, as well as a graduate certificate in social responsibility and non-profits. The Institut Supérieur de Formation Bancaire (ISFB) has launched a new Certificate in Sustainable Investment. Lastly, sustainability will soon be included in the syllabus of the SAQ Client Advisor Certificate, which is widely recognised as the industry standard.
Financial flows reflect what is happening in the economy more broadly. To make sustainability part of their investment decision-making, financial institutions need access to information about the companies they invest in. For many Swiss companies, however, information about sustainability is still lacking. Some guidance on how to fill this gap is provided by the Task Force on Climate-related Financial Disclosures (TCFD), the European Directive on the publication of non-financial information (Non-Financial Reporting Directive – NFRD) and the standards for sustainability reporting developed by the Global Reporting Initiative (GRI).