Sustainable finance, commonly called green finance, attracts an increasing number of investors. The Swiss financial center already plays a leading role in this field. Assets managed along sustainability principles have soared over the past decade in Switzerland. This trend is set to continue unabated thanks to its strong commitments and unrelentless efforts in sustainable finance.
Sustainable finance refers to any form of investment decision that takes into account environmental, social and governance (ESG) considerations when making business or investment decisions, rather than solely focusing on obtaining the greatest financial return. The field covers a wide range of financial instruments, including sustainable funds, impact investing, microfinance or the development of the whole financial system in a more sustainable way.
Sustainable investing has clearly gone mainstream. Investment assets using ESG criteria today amount to more than 35 trillion US dollars globally, with an average of two ESG funds being launched every single day. Switzerland actively works on capturing this growing segment and on strengthening its position as a leading location for sustainable financial services. Its efforts have clearly paid off. The demand for sustainable assets and financial products has surged. The volume of sustainable investments managed in Switzerland soared over the past decade, from a mere 41 billion Swiss francs in 2010 to more than 1.5 trillion francs in 2020. Last year, funds adopting sustainable investment approaches, for the first time ever, exceeded those of traditional investment funds in Switzerland.
Source: Swiss Sustainable Investment Market Study 2021
Large amounts will continue to flow into sustainable assets and financial products in the coming years. To be able to meet the climate goals set out in the Paris Agreement on climate change, Switzerland will for example have to inject around 14 billion Swiss francs in climate protection measures – annually. Its banks will to a large extent be able to cover the resulting financing needs.
Ambitious sustainable finance strategy in place, with new measures looming
The promotion of sustainable development is firmly enshrined in the Swiss constitution, just as sustainability is in the country’s financial market policy. The Swiss government has since 2016 aimed at putting in place a regulatory environment that not only strengthens the competitiveness of Swiss financial services providers, but simultaneously enable them to make effective and verifiable positive impacts on the climate and biodiversity. The government took an additional step in June 2020, when principles and measures in the area of sustainable finance were fleshed out.
Additionally, a consultation paper on common parameters for binding climate reporting is due next summer. Not all Swiss-based companies will have to reveal their impact on the climate: only public companies, banks and insurance companies with more than 500 employees, or with assets or turnover above a certain threshold. They will have to disclose the financial risk that the company incurs as a result of climate-related activities, as well as the impact of their activities on the climate and environment. The aim is to have comparable data at hand. The binding implementation of these climate parameters is set to enter into force in 2024.
International developments in sustainable finance carefully monitored
Switzerland constantly monitors international developments in the area of sustainable finance, given the Swiss financial sector strong interconnection with the global financial system. New regulations, particularly those occurring in the EU, but also at OECD level and further away, are carefully examined. The EU’s Sustainable Finance Taxonomy regulation – a classification system establishing a list of environmentally sustainable economic activities – is a good example. The regulation does not apply as such in Switzerland, but if Swiss banks want to distribute their financial products in the EU, they must comply with it.
Switzerland is also active in international finance bodies that tackle sustainability-related issues, such as the Financial Stability Board (FSB) and the Coalition of Finance Ministers for Climate Action. It will for instance adopt the international standard defined by the FSB’s Taskforce on Climate-related Financial Disclosures (TCFD) earlier this year.