Skills

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.

Geneva Financial Center

Sustainable finance is everyone's business!

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 several leading Swiss financial industry associations which published important documents with the aim of positioning Switzerland as a leading global centre for sustainable finance:

In late June 2022, Swissbanking published two self-regulations for financial services providers : the first on the integration of ESG preferences and risks in the investment advisory and portfolio management processes, and the second on the mortgage advisory process, with a view to improving the energy efficiency of buildings.
At the end of September 2022, the Asset Management Association Switzerland (AMAS) published a self-regulation on transparency and disclosure by collective assets with reference to sustainability, with the aim of strengthening the role of the Swiss asset management industry in the field of sustainable finance. This self-regulation also defines the requirements not only for the organisation of financial institutions, but also for the design and information on products for investors. This directive, which is binding on AMAS members, will come into force on September 30, 2023.
Swiss financial institutions are increasingly aligning their business models with the Paris Climate Agreement by embracing initiatives such as the Glasgow Financial Alliance for Net-Zero (GFANZ), the Net Zero Banking Alliance (NZBA) and the Net Zero Asset Managers Initiative (NZAMI), as well as the UN Principles for Responsible Banking (PRB) and Principles for Responsible Investment (PRI), in relation to their banking and investment activities respectively.

SBA and AMAS have joined the Net Zero Banking Alliance and Net Zero Asset Managers Initiative as supporting institutions and encourage their members to join net-zero alliances and sustainability initiatives.

SBA, AMAS, SIA (Swiss Insurance Association) and SSF commissioned PwC Switzerland to carry out a study of the current state of the Swiss financial sector’s commitment to the net-zero target, which was published in August 2022 as Setting Sail for a Carbon-Neutral future: Net Zero Insights 2022.
The Federal Council adopted a set of Guidelines for Sustainable Development in the Financial Sector. The federal government, through the State Secretariat for International Finance (SIF), published its Swiss Climate Scores at the end of June 2022. Defined in partnership with the financial industry, the Swiss Climate Scores are a voluntary scheme that aims to establish good practices in disclosure, in order to make financial products compatible with climate objectives and encourage investment decisions that contribute to achieving these objectives. They consist of 6 indicators covering the current situation and the energy transition (forward-looking metrics).

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.

Geneva Financial Center

How can we prevent the greenwashing?

Greenwashing can occur when investors' expectations regarding the sustainable financial products offered by banks do not match the actual characteristics of these products. Greater transparency (disclosure) and better classification (taxonomy) of sustainable finance activities are essential to bridge this gap, educate end-investors and improve the training of investment advisors.

Actually, implementing a sustainable investment strategy is not as simple as it seems. Investors face two main challenges:

At the national level, Swiss law imposes overly strict investment rules on pension funds
At the international level, standardization of rules and definitions is still lacking

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. While the abolition of stamp duty and the reform of withholding tax would have been a step in the right direction, both measures were rejected at the ballot box, in January and September 2022.

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:

Standardise rules while minimizing the potential negative effects of over-regulation
Promote transparency and prevent greenwashing
Ensure that ESG reporting is not overly burdensome for companies

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.

Geneva Financial Center

Education & training: Developing sustainable finance expertise

The Geneva financial centre owes its success in large part to its ability to attract the best talent. With a 12.4% share of the cantonal GDP and more than 37,900 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.

Geneva Financial Center

Encourage excellence

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 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.

Geneva Financial Center

Q&A

How can the economy become more sustainable?

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).

Geneva Financial Center