Paradigm shift in financial market

Zurich, 19 March 2019 – In the next two years, new standards will be pushing the European financial sector towards sustainability at an increased pace. The Swiss financial sector is fundamentally well placed in this respect and benefits from very substantial expertise. However, Switzerland must adjust its regulatory framework in such a way that the Swiss financial sector continues to have access to the European market and is able to keep pace with international developments. The study published today makes the following concrete recommendations in this respect:

• The Federal Council should ask the federal administration to draw up a sustainable finance action plan for Switzerland. This must comprise legislative measures and incentives such that Switzerland can once again take a leading role in sustainable finance.
• The Federal Council should establish a committee of experts (with representatives from the finance industry, think tanks, academia and civil society). This committee should, firstly, reflect on and define how Switzerland needs to adjust to the new legislative parameters of the EU action plan; secondly, expand the knowledge base on sustainable finance; and, thirdly, comment on the Federal Council's Swiss sustainable finance action plan.
• Every Swiss bank, insurance company and asset manager should examine the EU sustainable finance action plan at senior management level and take any measures required.

“If Switzerland moves promptly towards sustainability in this way, great opportunities for the financial market and the Swiss financial centre will be created,” explains Michael Taschner of PwC Switzerland. But the study also shows that, without transparency on sustainability standards, the access that Swiss financial institutions have to the EU market may be at risk. If this business with EU clients disappears, there would be massive consequences for financial institutions such as banks, insurance companies and pension funds.

EU action plan puts Switzerland on the spot

The EU will implement the "Financing Sustainable Growth" action plan over the next two years, thereby compelling Switzerland to act also. This action plan changes practically the whole financial market regulatory structure, in that sustainability factors will be integrated into risk management, transparency requirements, client advisory etc. Sustainability factors will be viewed in the light of the new standard and must be incorporated by all financial service providers into their internal processes.

The action plan raises the level of transparency, measurability, comparability, data quality and data accessibility. It thus creates the basis for the guidance of financial flows as decided in the Paris Agreement on Climate Change. “A reorientation and rapid implementation of the EU rules is also required in the Swiss financial sector, so that Switzerland does not become an isolated island for non-sustainable financial investments,” says Ivo Mugglin of WWF Switzerland. The matter has still not been adequately discussed, creating great uncertainty and incalculable risks for the financial sector.

The four EU sustainable finance points

• Unified EU classification system to make it possible to distinguish between sustainable and non-sustainable financial products and to take more soundly-based investment decisions.
• Investor duties (often known as “trustee duties”) will be clarified. Asset managers and institutional investors must in future show to what extent their investments are aligned with sustainable objectives and demonstrate how they are complying with their duties.
• Inclusion of climate risks and opportunities in benchmarks: one for low CO2 emissions (“decarbonised version” of standard indices) and one for positive CO2 effects.
• Advice to private clients in the banking and insurance sector must in future include sustainability considerations.