The Swiss Federal Council has approved measures to improve sustainability in the country’s financial sector, including the further development of impact investing
The Sustainable Finance in Switzerland – Areas for action for a leading sustainable financial centre, 2022–2025 report, which received approval last month, aims to set in motion measures to strengthen Switzerland’s competitiveness as a financial location while simultaneously achieving the UN Sustainable Development Goals.
The report covers measures focused on impact investments and green bonds, including the promotion of financial flows with a climate and sustainability impact in developing countries, the review of amendments to financial market legislation to promote the expansion of impact investments and the further issuance of green bonds.
Speaking to Impact Investor, Xenia Karametaxas, policy advisor on sustainable finance in the Swiss Federal Department of Finance, explained that a working group was being set up to focus on ways to mainstream impact investment.
“We’re currently putting together a working group with FINMA [Financial Market Supervisory Authority], DETEC [Federal Department of the Environment, Transport, Energy and Communications] and EAER [Federal Department of Economic Affairs, Education and Research] which will work closely with the impact investment industry, to understand to what extent we need to amend financial regulation in order to create broader access to impact investment in Switzerland,” she explained.
Karametaxas, who will lead the working group, said that impact investment, which currently accounts for a very small portion of sustainable finance approaches in the country, had “huge potential” for growth.
“Only around 5% of sustainable finance in Switzerland can be labelled as impact. Broadly speaking, only foundations, family offices and institutional investors can access this market, whereas return-oriented asset owners, such as retail investors, are limited in what they can invest in by regulatory restrictions regarding liquidity. Our task will be to figure out to what extent regulation such as the Financial Services Act can be amended to open up impact investment to a broader range of investors,” she said, adding that there would probably have to be “a trade-off between investor protections and impact.”
The report proposes the introduction of a new impact-focused collective investment category to open up “controlled access” to the asset class to a wider range of investors.
Karametaxas said the group would be working towards an autumn deadline when she hoped they would have a proposal ready for the Swiss finance minister to start the process of amending regulation and making wider access to impact investment possible.
Green bonds and development finance
With the first green Confederation bond issued last October, the Federal Council said it was committed to issuing further green bonds in the future, working within the World Bank to promote the issuance of green bonds in emerging market and developing countries, encouraging private sector issuance and supporting the issuance of other sustainable bonds, such as sustainability-linked bonds.
The report indicates that blended finance approaches to de-risk impact investments in the context of Swiss development cooperation were also being explored.
“This report essentially lays out the Swiss government’s strategy in relation to sustainable finance and in impact investment there are several pieces to the puzzle. One is green bonds, one is about amending the Financial Services Act and the last is about promoting financial flows in developing countries, which is being led by the EAER to further the SDGs through impact finance,” she added.
Data, transparency and pricing pollution
Other areas for action in the report include improving the quality and accessibility of sustainability data from all sectors of the economy, for instance through disclosures on climate compatibility, as well as improving transparency in the financial sector with recommendations that financial institutions apply the recently introduced Swiss Climate Scores or join international net-zero alliances among the measures proposed.
The report also deals with the prevention of greenwashing with a separate position paper published outlining that financial products or financial services advertised as sustainable, should at least be aligned with a stated sustainability goal or make an effective contribution to sustainability goals.
“The aim is not to copy the EU’s Taxonomy but to enforce that financial products or services that are labelled as sustainable must, in addition to their financial goals, pursue an investment objective that is aligned with a specific sustainability goal or that contributes to achieving a sustainability goal. Products and services that are simply aimed at reducing ESG risks or optimising performance should therefore not be described as sustainable,” explained Karametaxas.
Another area for action focuses on pricing pollution through active support for global carbon pricing initiatives and the identification of opportunities in carbon offsetting.
The publication of this report is the culmination of several reports published since 2020, with the goal of reinforcing Switzerland’s position as a leading location for sustainable finance.