The European Union is accelerating its push to integrate sustainability standards in the financial market. The Swiss finance industry will be forced to adjust its services as well if it wants to keep unfettered access to the common market.
Investments to the tune of 180 billion euros ($204 billion) are required to reach the United Nations’ sustainable development goals, according to estimates compiled by the European Commission. Per year, that is.
The EU is taking issue with the industry in a bid to reach this highly ambitious target. It will implement the action plan dubbed «Financing Sustainable Growth» within two years. This will put the Swiss financial market under pressure to act, according to a study presented by PriceWaterhouse Coopers and the World Wildlife Fund (WWF).
No Equivalence, No Access
For Switzerland and its interests, the keyword is equivalence: to retain an unfettered access to the EU market, Swiss banks and insurers will have to adopt EU standards, nolens volens. This is the reason why Switzerland is imposing new regulation that mirrors the so-called Mifid II designed by the EU.
The new sustainability requirements by the EU will now have to be added on top:
- The demands will reasonably require the introduction of a new classification that allows investors distinguish the sustainable from the non-sustainable products. It will also include a manifestation of duties for investors.
- Wealth managers and institutional investors in future will have to substantiate their claim to adhere to the goals of sustainability.
- In future, the risks and opportunities in relation to the climate will have to be integrated via a carbon dioxide emissions point of reference.
- Banks and insurers will be required to include sustainability aspects in their advisory to private clients. The new rules will put a specific emphasis on retail banks. They ought not to sell any products that run counter to sustainability goals set by the Commission.
A New Standard
The action plan designed by the EU creates a set of new rules on the one hand, but also affects existing regulation. Mifid II for the financial advisory, UCITS rules for the funds business and Solvency II for insurers are all affected.
Sustainability will become a new standard requirement that has to be adhered to by all financial service providers, both in the EU and in Switzerland. Otherwise, the gap between the Swiss financial market and the EU will widen yet further, the study authors say.
There's Room for More
The Swiss federal administration may soon see itself under pressure to come up with a state-sponsored effort to promote sustainability much like fintech or the blockchain given the heightened interest in everything concerning climate change and in anticipation of the general election to be held in the autumn of 2019.
In such an effort, the government would be asked to focus on how it could promote opportunities provided by the push towards a sustainable investment industry. In principal, the Swiss financial market is well positioned to profit from such expertise, said PWC and WWF. Today, about 8 percent of all assets invested are managed according to sustainability requirements. This corresponds to about 390 billion francs and also shows that more can be done yet.
Niche and Big Players
A coherent approach is needed to allow the market to exploit the potential of sustainability. Robeco SAM, Globalance Bank and Alternative Bank Switzerland are three niche players very active in sustainable investments. Gradually, they receive support in their quest from bigger rivals such as Pictet, Lombard Odier and also Swiss Re.
Switzerland’s largest bank has also shown what can be done. UBS has decided to industrialize sustainable investing and has received widespread attention for the move instigated by CEO Sergio Ermotti.
No. 1 in Several Ways
In the sustainability ranking of asset managers compiled by Thomson Reuters, UBS is listed as No. 1 with a reading of 92.6 points.
Time will tell whether their colleagues in the Swiss financial market are taking the cue.
