Switzerland paves the way in sustainable finance

 Is the Swiss financial sector doing enough to meet the goals of the Paris Agreement?

Switzerland has made these goals a strategic objective. The scale and expertise of the financial sector mean it has a key role to play in this transition. It is not a matter of taking a moral stance, but of realigning investment and lending towards more sustainable and, therefore, lower-risk activities.

The public has an image of bankers driving around in Mercedes and Porsches – to what extent is this realignment sincere?

Mind-sets are changing very quickly. To do their jobs well today, finance professionals need to factor in sustainability, which involves finding the best places to generate returns on savings while minimising risk. The financial sector has taken heed of the fact that climate risks, among others, are a crucial part of any fundamental analysis.

This does not yet seem to be the case for all investment professionals...

Since 2015, attitudes towards this issue have changed and are evolving at pace. Negative climate and environmental impacts have been observed, measured and communicated. Moreover, a number of major companies have collapsed because they underestimated these risks. Advances in technology mean that we are better able to identify the root causes of the issues, quantify them and find solutions. Thousands of satellites now measure the earth’s temperature, greenhouse gas emissions, and biodiversity, in real time – this would have been impossible five or ten years ago.

According to Swiss Sustainable Finance (SSF), sustainable investments in Switzerland have reached CHF 1,520 billion¹. Just a few years ago, these investments were undisclosed. What’s behind this change?

This significant growth in the figures and the investor appetite it reflects have emerged at the same time as post-Covid recovery plans that are taking shape in Europe, the US and elsewhere. Thankfully, these plans predict that people will return to work in a more sustainable manner. It is up to individuals to consider how they can contribute in terms transport, their professional activities and where they put their money. This will ensure that we keep on speaking the same language and stay the course.

European legislation defining sustainable investment criteria – the much spoken-of taxonomy – becomes effective in early 2022. Are Swiss banks ready?

The EU is one of the originators of the global effort to regulate this area. Not all aspects are regulated, but developments are heading in a clear direction: orienting investment towards "green" activities. However, the European taxonomy will not automatically apply to Switzerland.

Because it is not a member of the EU?

Yes, and because our economy is already quite "green". However, if banks want to continue to distribute their investment funds and other financial products in the EU, they will need to adapt to this legislation. Finance is a high added-value export sector, which needs to comply with European rules in order to continue to prosper in this market.

As a banker who champions social issues: how do you plan to convince the public of the sincerity of this initiative?

When you are an entrepreneur, as I am, you cannot progress without a social conscience. The financial sector cannot function without an understanding of social risks. It's not in the sector's interest for its immediate environment to be affected by social instability. Switzerland – which is highly stable – is a perfect example of the opposite.

What is Switzerland's position in the debate on the definition of sustainable finance? Will it create its own taxonomy or adopt others?

A bit of both. It will adopt the international standard defined by the Task Force on Climate-related Financial Disclosures (TCFD). It will also try to make it impossible to sell the public savings products that purport to be sustainable but are not. There is some risk involved, but Swiss legislation already provides good protection for savers.

Finally, the financial sector is developing methods to make it possible to compare the positioning of each company against its sector average in regards sustainable development. This information will allow savers to invest in the companies that are best positioned in relation to their competitors. They may also choose to invest in companies that are more polluting, with a view to influencing them to modify their practices. There are already numerous examples of environmental shifts caused by shareholder pressure.

What body will have authority?

FINMA and the SNB will ask banks and insurers to disclose their climate risks to ensure that the costs of a catastrophe would not push them into financial difficulty. Banks and insurers that have taken on too much climate and environmental risk will be required to bolster their capital. The sector has not forgotten the fires in California two years ago, which resulted in the failure of a large insurance company being unable to meet its policyholders’ claims. The same effort is being made on an international level. As a result, the cost of capital will now be higher for financial players that have the highest exposure to these risks.

And the European taxonomy?

Europe is well ahead in this area, but others have moved on in their thinking – Canada and Singapore are good examples. It is important that here in Switzerland we develop our own ability to think ahead to the requirements of tomorrow. That said, we need to avoid excessive gaps between the different regulatory systems, which could lead companies to comply with the least demanding requirements, to sidestep the most stringent. It is in the interest of the Swiss to ensure our systems are consistent with the best and our financial centre has the means to make its voice heard. We need to advocate for our own proposals.

Would Swiss regulation be sufficiently Euro-compatible to obtain EU equivalence?

I think that Switzerland will definitely decide that there is no need to create an additional taxonomy. A decision should be reached very soon. However, it must participate in the European deliberations by proposing that the regulation extends beyond climate issues to cover social considerations, and those related to nature. Switzerland is ideally positioned to do this, bringing together all concerned. Our influence over the technical deliberations remains important despite the political obstacle created by the decision not to sign the Institutional Framework Agreement.

¹ https://marketstudy2021.sustainablefinance.ch/downloads/SSF2021MSfull144dpi.pdf 

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