Sustainable investment in the ascendant

Six Boerse

Switzerland is among the world’s most important financial centres. Its pioneers identified the trend for sustainable investments at an early stage and launched the first important products of this nature. The widespread impact that was hoped for has yet to materialise, however. Thanks to current initiatives, this could be set to change.

By Yvonne von Hunnius, 25.08.2015

People who invest money put it to work for them. But where exactly does it work? If an investment contributes to greater resource efficiency or fairness in the economy, it pays a double dividend. Thus the concept of sustainable investment is simple and appealing. It ultimately promises both financial and idealistic yields in the ecological or social sense. And according to Sabine Döbeli, Head of Corporate Sustainability Management at the Vontobel private bank: “Studies show that there are no financial losses in terms of the return on investment with classical sustainable investments.” Both private and institutional customers benefit from it. Ecological structural change needs capital and the Swiss financial centre is looking for a new profile. In this post-financial-crisis period, loud and clear calls are being made for the financial market to see itself as a service-provider for the real economy. Many experts have already identified sustainable investment as a potential key focus of activity for the Swiss financial centre – particularly as it is a precondition and cornerstone of the transformation to a green economy. However, the corresponding investment volume remains at a very low level.

Cautious Swiss actors
In late 2014, sustainable funds, mandates and structured products in Switzerland totalled CHF 71.3 billion – which represents around four percent of the total market. The growth rates are optimistic: from 2013 to 2014 the sustainable investment market in Switzerland grew by 26 percent. However, this does not conceal the fact that the steps being taken by financial world around Geneva and Zurich are hesitant. Financial advisors, in particular, often baulk at the complexity of the criteria associated with sustainable investment and criticise them as difficult to convey to customers. Switzerland is not the only place where such an image is emerging: although other leading financial sectors like Wall Street and London are getting involved, they are not weighing in with a particularly heavy commitment.

Switzerland could assume a leading role
This could be set to change in Switzerland. “Our financial centre is predestined to assume a leading role in sustainable finance – hardly any new state incentives or regulations would be needed for this,” Sabine Döbeli. As CEO of the network Swiss Sustainable Finance (SSF), which was founded in 2014, she has succeeded in attracting the support of major sector players like UBS and Credit Suisse as well as niche actors. Her credo: financial expertise in Switzerland exists alongside environmental know-how and responsible entrepreneurship.

Doebeli

Sabine Döbeli, Head of Corporate Sustainability Management at Vontobel Private Banking, CEO of the network Swiss Sustainable Finance (SSF) which was established in 2014.

Moreover, the SSF is also participating with representatives of the financial market, research and the federal authorities in an international study on a sustaianble financial system organised by the United Nations Environment Programme (UNEP). In the context of this study, under the lead of the FOEN, examples of best practice and pioneering Swiss financial products are being introduced to the international debate on a more sustainable global financial market.

Financial pioneers with a spirit of innovation
Financial actors in Switzerland had already displayed a green innovative spirit at an early stage. The first family of global sustainable indices, the Dow Jones Sustainability Indices, originated in Switzerland in 1999. Investment specialist RobecoSAM evaluates the sustainability practices of some of the world’s biggest companies for these indices. Switzerland has also established itself as the world’s leading microfinance centre with asset managers like responsAbility, Symbiotics, BlueOrchard and Bamboo Finance. The Zurich-based experts from responsibility expect the global microfinance market to grow by 20 percent in the current year. Another example is the first eco-efficiency fund Oeko Sar, which was launched by the Sarasin bank in 1994. A crucial factor here was the shift in perspective from thematic to intersectoral pooling.

A lot is also happening at the moment: the UBS manages an energy infrastructure fund which is linked with the objectives of the Energy Strategy 2050. The aim is to motivate investors to invest in the energy transition. The Zurich company Susi Partners has launched an Energy Efficiency Fund (EEF) for institutional investors: the fund capital migrates to the energy retrofitting of buildings and a percentage of the cost savings is returned over the years. This approach cleverly incorporates the long-term perspective.

Climate mathematics provide new impetus
Product innovations are essential. But what pleases sustainable finance expert Sabine Döbeli almost more is the trend for a more wide-ranging impact: “I can see that sustainability factors with fixed processes are being increasingly incorporated into regular portfolio management. Various banks are in the process of integrating sustainability factors into their financial analyses. A defined process for this has existed at Vontobel for four years and banks like J. Safra Sarasin and the Zürcher Kantonalbank are also making efforts in this direction,” she reports. In this way, standards relating to environmental and social issues as well as management issues are inceasingly becoming part of business processes. This represents an important step towards a sustainable financial system.

The fact that climate is becoming a megatrend, not least for institutional investors, is providing further impetus for these positive developments. This was demonstrated by the decision of the international insurance concern Axa Group in late May 2015 to sell its interests in coal companies, which were valued at CHF 500 million. This makes Axa the first global financial institution to become part of the so-called divestment movement. The company is ‘de-investing’ to divert capital into alternative energies. The precondition for this climate-friendly investment behaviour is the successful establishment of greater transparency in relation to greenhouse gas emissions which are associated with the investments and shareholdings.

Sustainable investments and their rules

With sustainable investments, criteria like social, ecological and ethical sustainability factors also apply in addition to the classical yardsticks of profitability, liquidity and security. The following methods are the main ones that can be identified in the design of sustainable investments:

  1. Integration: sustainable selection criteria are integrated here into the general portfolio management of investments through fixed processes.
  2. Best-in-class: providers integrate a sector’s top companies into their portfolios.
  3. Norm-based screening: providers ensure that companies do not contravene any international norms through the application of selective principles. For example, they exclude companies involved in the manufacture, storage and supply of controversial weapons.
  4. Topicality: products are developed that focus on a particular topic.
  5. Principles of impact investing: with products in this category, greater attention is usually paid with intention to the divers social aims of an investment than the financial ones.

UN facilitates global debate

As part of its long-term commitment to sustainable finance, in early 2014 the United Nations Environment Programme (UNEP) initiated an international study on the topic. It involves soliciting the views of societal actors and the design and development of a sustainable financial system. A number of countries including Switzerland are participating voluntarily in this “UNEP Inquiry into the Design of a Sustainable Financial System” and are initiating a debate on the topic: they gather experience, good examples and ideas in relation to the finance system and its relationship with current ecological, social and societal challenges. The aim is to identify the major obstacles that the financial system can pose for a green economy – the plan is to derive recommendations for the future from this information. The UNEP Inquiry is based in Geneva. Switzerland is represented on its Advisory Council by the Director of the FOEN Bruno Oberle. Under the lead of the FOEN, the Swiss team for the inquiry published an initial report in May and debated it at a symposium in Bern. Based on this, the Swiss team is now developing concrete recommendations for financial market actors and the federal authorities.

Financial market reform in Switzerland

The aim of the work currently being carried out on financial market reform is to establish greater transparency for customers. In particular, the new Financial Services Act (Finanzdienstleistungsgesetz, FIDLEG) and Financial Institutes Act (Finanzinstitutsgesetz, FINIG) aim, inter alia, to improve investor protection in accordance with international standards. Hence the FIDLEG deals with the conditions, under which financial services are provided and offered. Customers should be provided with as much information as possible so that they can make well-founded investment decisions; financial advisors shall be obliged to complete mandatory education and training. The draft legislation was submitted for consultation in autumn 2014. No binding requirements were formulated with regard to the level at which information should be provided on environmental and social criteria. In this regard, the Federal Council refers, in particular, to the voluntary undertakings of the financial institutions. The final version of the legislation is expected to enter into force from 2017.

Comments

28.05.2016
Hugues Mottard, Genève

Forest Finance Suisse est membre de Swiss Sustainable Finance et de Geneva Sustainable Finance. Nos rendements dépassent les 7% par année depuis plus de 20 ans.   

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