Amid numerous alarming environmental reports, the call for action to address climate change has never been so loud. Is the Swiss financial sector stepping up to the plate?This content was published on October 22, 2019 - 11:00
For small farmers living in southern Ghana, receiving accurate weather reports is critical. Planting seeds at the wrong time could mean seeing them washed away together with fertilisers. Ignitia is a growth-stage company that delivers clear meteorological information to West African farmers via mobile phones for a low rate, based on their precise geographical position.
The company is looking to grow, so its CEO was in Geneva recently to pitch to investors at the Sustainable Development Goal (SDG) Finance Geneva Summit, organised by the United Nations Development Programme (UNDP), one of dozens of meetings taking place here during a week dedicated to sustainable finance. Ignitia’s CEO and founder Liisa Smits says that by the end of the gathering, several Swiss investors had approached her, expressing interest in the company.
“Growth is really happening in emerging markets, and these types of investments may often address climate-related issues and contribute to [the United Nations Sustainable Development Goals],” she said.
The concept of sustainable investment is not new to Switzerland. For years, the Alpine country has been trying to position itself as a centre for “green” or sustainable finance, arguing that the presence of international organisations, NGOs and think tanks in Geneva means its banking sector is well placed in relation to international exchanges on sustainability issues. Banks have launched sustainability or ESG (environmental, social and governance) departments, impact finance groups have emerged and “green” bonds have been issued.
But Justine Leigh-Bell, market development director at the Climate Bonds Initiative, which aims to mobilise the $100 billion global bond market for climate solutions, says the Swiss banking sector long rested on its laurels. In the early days, she says, the Swiss saw themselves as already sustainable and “ahead of the game” whereas other global markets needed to catch up.
Swiss institutions were slow to define any position on sustainable finance, Leigh-Bell notes. And when they did, it was “very superficial”.
What qualifies as sustainable? This can vary, according to the asset manager or investor. Manuel Leuthold, president of Compenswiss, the Swiss Federal Social Security Fund, said that while his fund calculated recently that 42 % of its investments are sustainable, others say their own are nearly 100% sustainable.
“There is a labels war. We need a standard; a global rating system,” he said.
Since individual companies have their own standards for determining what is sustainable and comparisons are difficult, the demand for ratings agencies focused on environmental, social and governance has mushroomed. But such agencies often only review larger, listed businesses and the transparency of their assessments remains limited.
As a result, inter-governmental bodies and NGOs have stepped in to try to develop sustainable finance standards. For example, the European Union has developed an action plan on sustainable finance, and the UN has several initiatives underway, including the United Nations Environment Programme (UNEP) Finance Initiative and the SDG Impact Management Project. Then there are private initiatives, such as the Science Based Targets, supported by the World Wildlife Fund (WWF).
WWF’s CEO for Switzerland, Thomas Vellacott, expects those efforts will together provide greater information about companies’ green criteria.
“At the moment we are welcoming anything that goes towards more disclosure,” he said.
Amid global and local calls for action on climate change, sustainable finance practices have been increasing in Switzerland. In 2018, some CHF716 billion in sustainable investments represented 22% of total assets managed in Switzerland, compared to CHF215 billion in 2016, representing 7% of total assets. Globally, 11% of investments are considered sustainable, as estimated by the McKinsey management consulting firm.
Roland Dominicé, the CEO of Swiss microfinance company Symbiotics, has observed an uptick in interest in sustainable investments.
“There is a clear increasing interest both from the private banks we talk to – in terms of their clientele, where it may be the millennials...or the older generation who listen to their kids or who see a rationale for moving into sustainable products – and then from pension funds looking for sustainable products,” he said.
Meanwhile investors in listed companies on the stock market are also paying more attention to where their money is going, explained Alex Abawi, an innovations expert at software company SAP in Zurich.
“The new stakeholders at the stock market are Generation X, Generation Y. This is very important for shareholder value,” he said, adding that ESG ratings – a system to help investors identify environmental, social and governance risks and opportunities within their portfolio – are now “really important” for companies.
State vs markets
A number of bankers from major institutions attending Geneva events around sustainable finance argued the federal government should do more to incentivise companies, including banking institutions, to invest in green innovations and to ensure that Switzerland achieves its high ambitions regarding sustainable investing. A statement to that effect was signed by representatives of the Swiss private sector development finance community in Geneva earlier this month.
But Swiss Finance Minister Ueli Maurer has made it clear that his government will not intervene.
“We count on the market to come up with sustainable products that investors can put money into,” he said at Geneva’s SDG Finance Summit.
Meanwhile, UBS CEO Sergio Ermotti explained at the summit how the global bank is working hard to improve its sustainability portfolio, signaling that Switzerland’s largest investors are becoming increasingly convinced that sustainable investments will not sacrifice returns.
“We work with families, entrepreneurs, industry leaders and many others who are very concerned about the world we will hand over to the next generation,” the banking chief said, adding that acting in accordance with the UN’s SDGs presents an “opportunity to preserve growth”.
Last month, UBS became one of the first signatories of the UNEP’s Principles for Responsible Banking (PRB), to align its business to the SDGs.
Leigh-Bell said Ermotti’s direction to strengthen sustainability may represent a turning point in the sector in Switzerland. “As one of the largest asset management firms in the world, when they speak, the market reacts. Switzerland is waking up to this. Given the pools of capital here, this is a huge development,” she said.
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