SwissBanking
The online magazine of the Swiss Bankers Association
June 26, 2019

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Sustainable investing – the new norm

Sustainable investing – the new norm

The climate discussion is shaking up Switzerland and its financial centre. The latest figures from Swiss Sustainable Finance for the volume of sustainable investments in Switzerland show that they have reached over 700 billion francs, a new record. This is good news and speaks for the financial centre and its stakeholders, also in international comparison. However, there is still a long way to go if the desired impact is to be achieved.

The Paris Agreement requires that finance flows be aligned in a climate-friendly manner. The banking sector also stands behind this goal. But the sector cannot achieve this alone. Only if all financial centre stakeholders work together can the goals be achieved. The transition from niche to norm requires corresponding framework conditions. 

Swiss Sustainable Finance recently launched its second market study on sustainable investments in Switzerland. It contains positive news for the Swiss financial centre and climate policy. Sustainable investments rose 83% last year to 717 billion francs, thus setting a new record. This shows that social and environmental aspects today play an important role in investment behaviour. Investors are focusing on sustainability and the financial sector is successfully providing a corresponding offering for the demand from customers.
 

Grafik Sus Fin.jpg
Grafik Sus Fin.jpg

The figures show a sustained growth trend in sustainable investments in Switzerland. While institutional investors were the main growth drivers last year, the share of private investors is also slowly increasing. The encouraging figures also show that the financial sector is already making an important contribution and is willing to do even more.

Transformation is gathering pace

This transformation in the financial sector and the SSF’s fifth anniversary were the key themes at the SSF annual conference, which featured an address by President of the Swiss Confederation Ueli Maurer.

Sustainable investing, or sustainable finance, is also a strategic priority for the Swiss Bankers Association and the financial centre. The positive impact of sustainable investments can be twofold. On the one hand, they have significant potential on the business side, and on the other hand, they enable the financial sector to make a concrete contribution to the achievement of the global climate goals and a sustainable economy.

In the debate that is currently underway, however, the role of the Swiss financial centre and of the banks in particular is often misrepresented and therefore overestimated. As at the end of 2017, over 7,200 billion francs were managed in Switzerland. Among others, these originate from private savings deposits at banks, insurance capital or pension contributions to pension funds and from old-age and survivor's insurance (OASI). In addition to this, the SNB manages assets of over 800 billion.1  It should, however, be noted that banks have only a small part of the assets at their disposal. The much larger portion of finance flows are managed by banks on behalf of their customers. Banks ultimately always provide their services within the scope of the orders they receive. In other words, banks must follow the instructions of the investor (private or institutional). This means they cannot make investments that are not in line with the wishes of their investors.

The two objectives “climate compatibility” and “financial viability” do not always go hand in hand. The primary mandate that investors give banks is to achieve the highest possible profitability while taking into account their risk tolerance – and not to invest in a way that is as climate friendly as possible. In order to have an effective overall impact, an interplay between investment universe, investors and financial intermediaries is therefore needed. As financial intermediaries, the banks cannot bring about sustainable finance flows alone. They can, however, absolutely facilitate these – provided the product offering and demand from investors exists.

All players are called upon

It is therefore clear that measures aimed only at financial intermediaries do not have the desired impact. For maximum possible impact, a distinction must be made between measures:

  • for investors (pension funds, insurers, private investors, etc.),
  • intermediaries (typically asset managers, wealth managers, banks, insurers, pension funds and private investors) and
  • the investment universe (equities, bonds, infrastructure, etc.).

Uncoordinated measures which do not take this distinction into account will have little impact because they do not reflect the actual circumstances and possible approaches.

For the trend to gain further momentum, the Bankers Association advocates viable future framework conditions for sustainable investments. It is in contact with all relevant stakeholders to this end, because a common will is required if the targets that have been set are to be achieved.

1 By comparison, global wealth management is estimated at around 200,000 Billion.

Sustainability is not new territory for the Swiss financial centre
In this area, Switzerland can build on its unique expertise and long-standing experience. It is therefore no coincidence that with Geneva and Zurich, Switzerland is home to two of the world's 25 Financial Centres for Sustainability (FC4S), and that this organisation’s secretariat is based in Geneva, where the global annual meeting will be held in October 2019.
Swiss Sustainable Finance – Swiss Sustainable Investment Market Study 2019
FC4S Network