Source: BRP Bizzozero & Partners SA
While interest in Sustainable Investments was already on the rise before the COVID-19 pandemic, nowadays investors are paying even closer attention to environmental, social and governance (ESG) issues (such as climate change and social inequalities).
Together with an increasingly stringent regulatory framework - particularly in Europe - especially in terms of disclosure requirements related to Sustainable Finance, investor interest in ESG has increased and so it has also moved up the agenda of financial market participants.
Following its Action Plan on Sustainable Finance (enacted in 2018), the EU - as a “first mover” in the field - has subsequently launched a comprehensive package of measures. The aim is to strengthen Sustainable Finance, which is understood as covering any financial services integrating ESG criteria into investment decision making processes for the lasting benefit of both clients and society.
In the Swiss context, the Federal Council has stressed, in its Report on Sustainability in Switzerland's financial sector of 24 June 2020, the Swiss financial centre’s important role as a leading global financial centre on the path to sustainable development.
The Federal Council - rightly - further insists on the importance of closely following global regulatory evolution and the need to constantly consider any necessary amendments to Swiss financial market regulation based on the principle of the primacy of market-based solutions and the subsidiarity of government action.
In line with the above-mentioned approach to financial market regulation, several non-governmental organizations in Switzerland (e.g. the Swiss Bankers Association (SBA), the Asset Management Association Switzerland (AMAS) and Swiss Sustainable Finance (SSF)) have recently issued “best practice recommendations” to provide support and advice on how Swiss financial market participants can successively integrate ESG considerations into their processes.
For instance, the SBA’s “Guideline for the integration of ESG considerations into the advisory process for private clients” recommends financial service providers to ensure that their client advisors are adequately trained in ESG considerations. In addition to general expertise about the financial services and products offered to clients, client advisors should be able to address the risks and opportunities related to Sustainable Investments and the intended effect of such an investment (e.g.: “How does investing in a specific financial product address issues related to climate change?”).
In effect, not only the client’s knowledge and experience, its financial situation (including its ability to bear losses) and its investment objectives (including its risk tolerance), but also the client’s ESG preferences should be integrated when assessing the suitability and appropriateness of the relevant financial products.
In addition, the Federal Council is encouraging Swiss financial market participants to implement the Task Force on Climate-related Disclosures’ (TCFD) recommendations (as complemented in FINMA’s latest consultation on its planned amendments regarding climate risk transparency requirements). It is clear that financial market participants servicing (or seeking to serve) Swiss and/or European clients cannot ignore these regulatory developments and will thus have to take appropriate measures as follows:
Follow closely legal and regulatory developments regarding “Sustainable Finance”.
Analyse their business models in the context of ESG with a focus on their organisation, current resources and personnel (this may require additional staff training).
Make sure client advisors are given adequate training (either online or offline) regarding ESG considerations when advising clients in this respect and assessing the suitability and appropriateness of the relevant financial products.
Consider – where relevant – the implementation of industry guidelines, such as:
5. Assess the need for revisions of internal directives and processes (i.e., investment advisory and management processes, to ensure the proper reflection of client’s sustainability preferences as well as integration (and reporting) of ESG-related risks for client assets.