Interview with August Benz

August, what have been the most important advances in sustainable finance in Switzerland over the last 10 years and to what extent do you think SSF has contributed to them?

Over the past decade, key advances in Swiss sustainable finance include integrating Environmental, Social and Governance (ESG) criteria into mainstream investment, the rise of green bonds, and significant improvements in reporting frameworks. Swiss Sustainable Finance (SSF) has played a crucial role in fostering dialogue, providing education and promoting best practices. While Switzerland leads in areas like the Swiss Climate Scores, challenges remain, particularly in mobilizing sufficient private capital for financing the transition to a low-carbon economy. Despite considerable progress, there is still room for improvement in transparency and fully aligning financial flows with long-term sustainability goals.

Swissbanking has introduced self-regulation on sustainable finance in two areas: mortgages and client advisory/discretionary mandates. Recently you adapted the self-regulation. What were the major challenges and what was the effect of these self-regulations in the market?

The introduction of self-regulation, particularly for mortgages and for client advisory and discretionary mandates, aimed to systematically address sustainability issues in the advisory process. The major challenge was the alignment with existing regulations in and outside of Switzerland and avoiding a one-size-fits-all approach. The real test will be whether institutions view this as a mere compliance exercise or as an opportunity to genuinely advance sustainable finance. While it is too early to gauge the full impact, these self-regulations are crucial in avoiding greenwashing and helping clients make informed investment decisions.

Where do you see the most important role of banks in contributing to Swiss climate goals?

Banks play a key role in contributing to Swiss climate goals both domestically and internationally. As a leading centre for wealth management, Swiss banks can leverage their expertise to facilitate the transition to a low-carbon economy by financing sustainable projects like renewable energy and green infrastructure through green loans and investment products. Integrating climate risk assessments into lending decisions ensures support for projects aligned with sustainability goals. Internationally, Swiss banks can help mobilize private capital for sustainable development initiatives in emerging markets. However, it is important to remember that it is the clients that will decide at the end whether and how they invest their money or finance their own activities or projects.

You once stated in an article that banks are not the climate police. What did you mean with this statement?

The statement emphasizes that banks should not assume the role of enforcing environmental regulations, dictating what constitutes acceptable behaviour for industries or not financing activities which are legally allowed. Instead, their role is to integrate sustainability into their financial practices and support clients in making informed decisions. While banks can prioritize investments that align with sustainability goals, they should not fully ban investments in legally permitted activities, which do not align with sustainability goals, such as fossil fuels. Instead, banks should transparently assess and disclose the environmental impacts of their investments, allowing clients to make choices based on their values and the associated risks. Balancing financial returns with sustainability considerations is crucial, and banks should provide options that reflect this balance rather than imposing restrictions.

Other jurisdictions have gone further than Switzerland in regulating sustainable finance – with extraterritorial effects in many ways. How should Switzerland make sure it keeps up the competitiveness of its financial centre?

To maintain the competitiveness of its financial centre in the evolving landscape of sustainable finance, Switzerland should adopt a proactive and adaptive regulatory approach. This includes implementing smart regulations that are principle-based, allowing for flexibility and innovation. Switzerland does also engage in international collaborations to recognize and adopt best practices from other jurisdictions, fostering a harmonized framework that aligns with global standards. Finally, investing in education and capacity-building for financial professionals will help the sector adapt to new regulations and embrace sustainable practices, reinforcing Switzerland's position as a leading financial hub in Sustainable Finance.

In the US, we currently see a strong pushback on climate and sustainable finance. Will this affect the Swiss and European players in their endeavors to follow net-zero strategies?

The current pushback on climate and sustainable finance in the US could have ripple effects on Swiss and European players pursuing net-zero strategies. While the US climate policy landscape is highly polarized, Switzerland and the EU generally exhibit stronger political consensus on sustainability issues. However, global financial markets are interconnected, and setbacks in the US could influence investment flows, regulatory approaches, and corporate strategies in Europe. The situation in the US highlights the challenges of implementing cohesive climate policies amid political divisions. Stakeholders in Switzerland and Europe may face pressure from multinational corporations and investors influenced by US policy shifts, necessitating a coordinated approach to maintain momentum in sustainable finance and net-zero commitments across all regions.

Nature risks are increasingly moving in the focus of regulators. For which segments of Swiss banking do you see the most material risks emerging?

Nature risks become increasingly important for various segments of Swiss banking. In traditional domestic activities like lending and mortgages, some banks face material risks from climate change, biodiversity loss, and resource scarcity, which can affect asset values and borrower repayment. For example, properties in flood-prone areas may lose value, impacting mortgage portfolios. In off-balance-sheet activities, risks primarily rest with investors, but banks must still assess these when advising clients. On the opportunity side, nature finance encompasses sectors like biotechnology and sustainable agriculture. By facilitating investments in these innovative areas, Swiss banks can mitigate risks and position themselves as leaders in the evolving nature finance landscape.

Where do you see Sustainable Finance in 10 years’ time?

In ten years, sustainable finance is likely to be deeply integrated into mainstream financial systems, with robust regulatory frameworks and widespread adoption of ESG criteria across all sectors. Hot topics will include climate resilience, biodiversity finance, and the circular economy, as well as the use of advanced technologies like AI for sustainable investing. Reflecting on past achievements, there will be recognition of significant strides in transparency, standardized reporting, and green financial products. However, challenges will remain. The biggest gaps may include mobilizing sufficient private capital for emerging markets and ensuring that sustainable finance benefits all stakeholders. Addressing these gaps will be crucial for achieving global sustainability goals.

October, 2024