Financial industry overview
The financial sector is one of the Swiss economy’s central components, with almost a tenth of the country’s 2015 GDP stemming from financial and insurance services; making it comparable to almost any other major hub in global finance. In addition to this status, Switzerland is also the world leader in cross-border asset management, in which it holds 25% of the global market share. The finance industry here is highly diversified and home to more than 2000 pension funds and over 200 insurance companies, while its banking sector is made up of 275 individual banks.
The peculiarity of the Swiss pension system with its compulsory second pillar makes Switzerland one of the few countries where the three pillars contribute almost equally to old-age income. Asset owners have become increasingly interested in sustainable finance and to prove it, on the 3rd of December 2015, BVK Personalvorsorge des Kantons Zürich, compenswiss (Ausgleichsfonds AHV/IV/EO), comPlan, Pensionskasse Post, Pensionskasse SBB, Swiss Federal Pension Fund PUBLICA and Suva joined forces to establish the “Swiss association for responsible investing (SVVK-ASIR) “SVVK-ASIR’s founding members manage a total of over 150 billion Swiss Francs. The fiduciary duty of the funding members requires the inclusion of ESG (Environment, Social, Governance) criteria. By setting up SVVK-ASIR, the founding members meet this requirement in the most effective way.
Characteristics of the SRI market
The actors engaged with sustainable finance amount to 220 institutions. Here, Switzerland’s historically strong position in asset management is reflected by the fact that the largest category of institutions active in sustainable finance is the group of asset managers, then followed by pension funds and philanthropy organisations. Yet, despite that comparably smaller number of active institutions and an overall SRI market share of 4.5% of total investment funds, recent developments give rise to the assumption that sustainability concerns are abandoning their niche status. Over 2014, sustainable investments have grown by around 26% and over 2015 by almost 170%, with J. Safra Sarasin Group, Credit Suisse and Pictet being among the most important asset managers.
SRI Market and strategy overview
In terms of SRI strategies applied to funds and mandates, Exclusions has remained the dominating strategy at €2.5 trillion. This figure includes criteria especially applied to funds and segregated mandates (product specific), which totals €123 billion, plus Exclusions applied as asset overlays to product ranges.
2015 has also witnessed a heavy increase in the integration of ESG criteria into financial analysis, which grew by 311% since the last review. It is now the second most popular strategy. Norms-based screening registered a CAGR (Compound Annual Growth Rate) of 152% and Engagement and Voting a CAGR of 103%.
Impact Investing has been growing exponentially to the tune of 104% since the last review with a CAGR of 43%. The main players are asset managers and the main area of focus is Microfinance (73%)
Sustainability Themed investments have gone up by 67% with a strong focus on climate change investments.
ESG considerations have begun to factor more prominently into the activities of foundations. In 2015, Swiss Foundations issued a renewed version of the broadly used Swiss Foundation Code, which now incorporates guidance on sustainable investment. Another initiative which stimulated the market was certainly the FNG Label for mutual funds. Launched in 2015, it is audited by Novethic.
Other initiatives launched in 2014 and 2015 demonstrate the extent to which SRI considerations are not confined to only a few specialist institutions. The platform Swiss Sustainable Finance (SSF), which was introduced in 2014, provides support to further increase the level of sustainability in the industry.
No SRI specific legislative development has taken place since the previous edition of this Study. In terms of measures to directly promote SRI, Swiss authorities have taken some steps that could lay the groundwork for stronger engagement in the future. In early 2016, the Federal Council issued its Fifth Sustainable Development Strategy, which concentrates on the implementation of the UN Sustainable Development Goals, and extending the National Action Plan Green Economy. Both foresee measures to strengthen sustainable finance and green investments as one of their focus areas. Furthermore, the Federal Council has officially defined Switzerland’s international role as being able to become a global leader in sustainable finance.
The following years could generate an increase in new activities in the field of SRI. In particular, the Paris Climate Conference in 2015 has raised awareness of green finance and both investors and authorities have begun to react to the risks and opportunities posed by climate change. In September 2015, the Federal Office for the Environment published the Study Carbon Risks for the Swiss Financial Centre, which urges for more sustainable investment behaviour.
Asset allocation hereby shows that equities continue to be the most popular category by far (50%), followed by bonds (32%), of which corporate ones represent 55%.
The biggest dynamic, however, may come from institutional investors, who might increasingly engage with their investees in order to reach more sustainable business conduct and who currently represent 75% of the industry.