The future of (sustainable) finance in Switzerland

The future of (sustainable) finance in Switzerland

Panel with

Daniela Stoffel, State Secretary for International Finance (SIF)
Urs Rohner, Chairman of the Board of Directors of Credit Suisse
moderated by 
Mirjam Staub-Bisang, Country Head of BlackRock Switzerland

“We are committed to the future of sustainable finance in Switzerland.” It is with these words that Mirjam Staub-Bisang, Country Head for Switzerland and Senior Advisor for Sustainable Investments at BlackRock, kicked off the virtual summit entitled The tectonic shift – The future of (sustainable) finance in Switzerland.  The ambitious project that is behind this title was discussed with high-profile guests from government and the private sector. Together with the State Secretary for International Finance (SIF) at the Federal Department of Finance (FDF), Daniela Stoffel, and Urs Rohner, Chairman of the Board of Directors of Credit Suisse, Mirjam Staub-Bisang explored where Switzerland stands today concerning the topic of sustainable finance, and whether and how the Swiss financial centre can continue to play a leading role in this field in the future. 

The state creates the framework conditions

The state plays a decisive role in the transformation towards a sustainable financial and economic system, agreed Daniela Stoffel and Urs Rohner. “The government no longer sees a difference between sustainable growth and competitiveness,” said Daniela Stoffel in her opening speech. In its recently published report on the topic of sustainable finance, the government has defined two targets: (1) ensure the competitiveness of the Swiss financial market and (2) make an effective contribution to sustainability.

The remit of the Swiss government, however, is not to direct financial flows, but rather to create the right framework conditions for sustainable action, explained Daniela Stoffel. She singled out the following measures identified by the Swiss government as especially important in this regard:

  • Create legal certainty
  • Increase transparency
  • Correctly and consistently account for risks
  • Monitor international developments such as the EU taxonomy
  • Train and advise decision-makers and employees
  • Review sustainability standards
  • Strengthen the role of sustainable FinTech

“The key market driver of a sustainable financial system is the development of political and regulatory framework conditions,” noted Urs Rohner, underlining the importance of an appropriate and reliable regulatory system. He highlighted revised CO2 legislation as a positive example, which he explained will help bring financial flows into line with the Paris Climate Accord, since bodies such as the Swiss Financial Market Supervisory Authority (FINMA) will be required to regularly review climate-related risks. Rohner believes that this will ultimately force the private sector to adapt.

Daniela Stoffel expanded on the interplay between the private sector and the state in greater detail in her brief presentation. She reported that the state will only intervene directly in the free market economy if the latter fails to do its job – specifically, if financial market players are not in a position or are unwilling to act independently.

Sustainability is a strategic priority for banks

“Ultimately, the success of Switzerland in the area of sustainable finance hinges on the hard work and commitment of financial participants themselves,” explained Rohner. He assessed the situation in this regard as positive, and believes the industry is well prepared to take on the role required of it. The topic of sustainability has assumed strategic importance in today’s financial sector and has been taken up by the umbrella organisation of banks in Switzerland, the Swiss Bankers Association. “It’s clear that the industry has to play its part to support and reinforce the position of the Swiss financial centre in sustainable finance,” he said.

Rohner called for better access to data on the correlation between the risks and sustainability rating of an investment. He explained how recent studies have shown that risk differentiation between sustainable and non-sustainable investments is not always a given. One reason for this, posited Rohner, is that there aren’t yet adequate classification systems or taxonomies in place for sustainable investments.

Clients need help navigating the changing environment

Rohner was under no illusion that banks also continue to finance non-sustainable business models at the present time. According to him, a key task of financial institutions is to support clients in their efforts to become more sustainable. To help companies successfully master their transition from “brown industries”, they need a realistic plan (which can be implemented using transition bonds, for example) as well as clear sustainability standards to guide them. Rohner said that banks also need to pay attention to their “credibility” in terms of their financing activities – a point that Daniela Stoffel expanded on. There will always be a conflict of goals concerning sustainability , she said. As an example, she cited companies that provide sustainable housing for thousands of people but have a large environmental footprint. The financial system will also have to address transition and adaptation financing. The latter refers to investments in technical solutions when climate targets are missed, for example in connection with rising sea levels.

Concerning the EU action plan for financing sustainable growth, the Chairman of the Board of Directors of Credit Suisse explained that this is not binding for his institution. Nevertheless, the bank has already implemented certain measures from this document in view of its close collaboration with companies and institutions in the EU. As an example of the changes made, Rohner mentioned the bank’s internal governance processes, the establishment of an ESG management committee and the deployment of working groups for various ESG topics.

A holistic view is essential

The market is failing at present to correctly price in the costs of sustainability or the costs of non-compliance, explained Daniela Stoffel. But it is precisely these costs that need to be internalised in order to promote sustainable action. This is not an easy task, since sustainability encompasses not only the E – that is, ecological components, but also the S and the G – namely social and governance criteria, as Mirjam Staub-Bisang explained. While climate change has long dominated the debate, the coronavirus crisis has increasingly pushed social factors into the foreground. In studies, BlackRock has found that companies that have placed a stronger focus on social criteria (e.g. sustainable supply chains, good client relationships and an employee-friendly corporate culture) have been better able to navigate the coronavirus crisis.

Stoffel explained that, when it comes to climate-related aspects, debate has been ongoing for decades about how to price in the effects of CO2 emissions. This has provided a good basis of data to work with. Internalising the proportionate costs for social and governance aspects will be a much more complicated task, however. The State Secretary stressed that while climate-related issues are of course more time-sensitive, it is imperative that sustainability is viewed as a whole. “Sustainable growth is the only growth that can be achieved going forward,” she said of the post-corona era.

Implementation must be in line with other markets

“A competitive Swiss financial centre is a sustainable financial centre, and vice versa,” added Urs Rohner. One of the most crucial factors for Switzerland to solidify its role as a pioneer in sustainable finance is its access to other markets. To this end, framework agreements with the EU and good relations with the UK after Brexit will be vital. In Rohner’s opinion, the key is to avoid regulatory fragmentation. It will be important to align the Swiss regulatory system with international developments, and especially EU regulations. 

State Secretary Stoffel likewise emphasised the necessity of staying in close step with international developments: “Regulatory fragmentation is not an option.” The future competitiveness of the Swiss financial centre hinges on a high-quality standard that is nonetheless easy to implement and takes account of developments at an international level as well as in EU policy.  To support and promote sustainability across country borders, it must be possible to establish a bilateral dialogue between the EU and Switzerland on this topic. The State Secretary also considers good bilateral relations with the UK to be important in this area.

When asked by Mirjam Staub-Bisang whether the Swiss financial centre can realistically become a hub for sustainable finance, Rohner and Stoffel both said it can. Stoffel reiterated that Switzerland has the required excellence for this. “The EU market is of course very large. But Switzerland plays a vital role due to the excellent quality of its products. We have the clients, the know-how and more experience than most people think,” he said.

Specialists and digital progress needed

The two panellists also shared the same opinion when it comes to promoting and recruiting talents. Switzerland is dependent on qualified experts. “I've taken part in a number of discussions in recent weeks. And in all of them, the training and recruitment of specialists and qualified experts was one of the top three items on the agenda,” said Stoffel. Rohner added that it’s not just a question of training experts. but also retaining them in Switzerland through attractive offerings.

We need to make targeted use of the opportunities offered by digitalisation to promote sustainability, according to Daniela Stoffel. Urs Rohner likewise came to the conclusion that digitalisation will play an important role if Switzerland is to assert itself as a financial centre in the face of growing global competition.