Wealth managers should prioritize and consolidate their ESG know-how while also developing a corporate sustainability culture by internally training employees or hiring subject matter experts, says Carmine Cammarota, Country Head Switzerland at Prometeia, in an interview.

Carmine Cammarota, what do you think the future of sustainability in Switzerland will hold?

The sustainability landscape is full of opportunities and it is continuously developing, impacting our financial system. Regulations are necessarily accompanied and adapted to the changing market conditions and investor preferences.

Switzerland is mainly looking to align itself with international standards, while always keeping a close eye on the EU. As you rightly mentioned, our commitment and our first steps prove that we aren’t just playing around in the field, but we are working hard to become a key player in the market.

«It could be certainly useful to observe and learn what the EU has been doing in sustainability regulations»

However, it will take some time for us to become leaders. The entire Swiss sustainable framework is still under development and more work needs to be done. At the same time, Swiss financial institutions need answers because it won’t be straightforward to adapt and face all the challenges that will inevitably follow any ESG regulation.

Well then, how should Swiss wealth managers face this transition?

It could be certainly usefulto observe and learn what the EU has been doing in sustainability regulations and make the most out of this opportunity on our doorstep. The SFDR and Taxonomy initiatives have been revolutionary, but they also came along with certain challenges: just think of the enormous complexity of the data that companies will have to self-disclose very soon, or the integration of customers’ ESG preferences within advisory models, etc.

These challenges are already faced by Swiss financial institutions that have branches in Europe, correct?

Yes, exactly. All financial institutions in the Swiss Bankers Association will have to integrate ESG preferences within their advisory models by January 1st, 2023. About the challenges, I think the main issue at the moment concerns data. The market continues to demand an increasing amount of data which is mostly not available as of now.

The bulk of it, related solely to company self-disclosure, will only become available between 2023 and 2025, whereas wealth managers are required to integrate ESG within their risk and advisory models today. This is causing a lot of headaches. How to collect clients’ ESG preferences?

«We need data but also digital tools»

Which ESG analytics and metrics to choose, out of the thousands available out there, to evaluate the sustainability of client portfolios? How can all this lead to the best possible service for clients? These are all issues that wealth managers need to answer as soon as possible, and the lack of data is certainly not helping.

We need data but also digital tools. Software providers have started to integrate ESG functionalities within their solutions but they’re still at an early stage. Another complexity is at the front-office level. Advisors need to learn how to address clients’ sustainability preferences, interpret ESG analytics and communicate them effectively to customers, who, in turn, need to be educated and understand sustainability risks associated with their investments.

These changes will significantly affect the entire advisory experience. And this is just one piece of the bigger picture: my perception is that the Swiss market is also experiencing a certain shortage of skills and know-how in the sustainability field, not only at the front office but at every function of financial institutions: risk management, compliance, advisory.

In this context what would you recommend to Swiss wealth managers to become the next leaders in sustainability?

While these times might seem challenging, we actually see more opportunities than risks for Swiss wealth managers. To ensure leadership they should capitalize on this window of opportunity and design a long-term sustainable strategy.

The EU approach incentivizes most European financial service providers to take up wait-and-see positions, with the risk of having to implement simple or minimal solutions in a very short timeframe, potentially leading to a reputational backlash. Swiss wealth managers should avoid this by acting proactively and immediately increasing their focus on integrating ESG preferences within advisory models by the January 2023 deadline.

«This approach can significantly help financial institutions tackle all ESG challenges»

The new sustainability-based advisory model, which must be consistent with the growing awareness of clients, will reveal its true potential over time as data becomes more available. Furthermore, wealth managers should prioritize and consolidate their ESG know-how while also developing a corporate sustainability culture by internally training employees or hiring subject matter experts.

This must go hand in hand with the adoption of digital tools that integrate ESG functionalities into everyday workflows so that the know-how can permeate into the day-to-day activities at every layer of the organization. Therefore, finding the right partner capable to meet these digital needs is just as important.

In our opinion, this approach can significantly help financial institutions tackle all ESG challenges in advance and may constitute a solid foundation on which to build a sustainability framework for the future of the organization and, ultimately, of the advisory industry.

  •  Find out here how Prometeia can support you to become the next leader in sustainability.