Interview with Christoph Baumann

Christoph, 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?

Switzerland has seen tremendous advances in sustainable finance over the last 10 years. In 2022, the Federal Council published a Sustainable Finance Strategy highlighting the immense opportunity that the transition to Net-Zero poses for the Swiss financial market and laying out 15 measures to improve the framework conditions. These include the Swiss Climate Scores, a voluntary measure to improve the transparency of investment products with regard to their climate alignment and impact. It is great to see their swift adoption in the market!

In the same year, the Swiss federal government also issued their first green sovereign bonds, published their position on Greenwashing, and made climate disclosures, based on the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) mandatory for large corporations and financial institutions.

In 2023, the Swiss voters approved the Climate and Innovation Act, which includes a mandate to make finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development, as already stipulated by the 2015 Paris Agreement. 

Already since 2017, the Swiss federal government performs climate alignment assessments, so called PACTA-Tests, with the financial industry. To foster the availability of impact investments in the Swiss market, the Federal Council in 2021 launched the SDG Impact Finance Initiative.

In most initiatives mentioned above, Swiss Sustainable Finance has been a close partner, bringing in their vast expertise and the consolidated views of the Swiss financial institutions.

On the international level, Switzerland has become a shaping actor, for example as co-chair of the working groups on transition finance and disclosures of the International Platform on Sustainable Finance (IPSF), or in the G20 Sustainable Finance Working Group, and as a financial backer of the Coalition of Finance Ministers for Climate Action and the Taskforce on Nature-related Financial Disclosures (TNFD). Switzerland further co-initiated the Climate Data Steering Committee to work on a public utility for climate data.

Where do you see Switzerland positioned in sustainable finance relative to other countries?

That’s a difficult question, since not every financial centre performs climate alignment assessments like we do, so the transparency needed for comparisons is lacking. I believe we have shown ourselves to be pioneers in impact investment over the past thirty years. For example, Switzerland is the world leader in private impact investment in developing countries, with a market share of approximately 35%. However, impact investments account for only a small slice of the total Swiss sustainable finance market, albeit growing rapidly. Also, while we take a more principle-based approach to regulation, compared to some other jurisdictions, Switzerland has been at the forefront of introducing sustainable finance policy.

What are the most important levers of the financial sector in promoting the transition to a climate-friendly and sustainable economy?

On the investment side, the main levers include the distribution of primary market impact investments and the active stewardship with investee companies, including voting on directors, as well as a clear escalation procedure that leads to divestments as ultima ratio. While divestments itself have only limited impact directly, they lead to a price signal, due to lowering demand, which in turn may influence management behaviour.

On the financing and underwriting side, financial institutions have a direct lever and can actively support their clients on the transition to a more sustainable business model, through advice and tailored long-term financing plans.

How do we make sure the financial industry has comparable data at hand to integrate ESG factors into their business decisions?

Financial institutions are reliant on comparable, decision-ready sustainability data. Such data must include quantitative metrics and be forward-looking, so that investors can identify which companies are on track with their transitions and which are not. Governments and regulators play a key role ensuring the comparability and availability of such data, supported by technology initiatives, such as the Net-Zero Data Public Utility (NZDPU) or green fintechs. This is the reason the Swiss federal government initiated the Swiss Green Fintech Network.

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

When investors want to judge the financial performance of companies globally, they just need to access the company’s annual report and will find an income statement and balance sheet that looks exactly the same, across industries and jurisdictions. This is where we need to get to with transition plans: a comparable, brief overview of the company’s ambition and progress, allowing investors to make robust financial decisions. Globally, bodies such as the International Sustainability Standards Board (ISSB) are ideally placed to develop such tables. In the meantime, Switzerland could take a leadership role and develop industry-led tables on transition plan reporting.

Over the next 10 years, I see nature being fully integrated into climate reporting and transition plans. Also, each and every bank and insurance client should have access to exactly the information on the sustainability impact they desire. I remain hopeful that this will happen over the coming 10 years.

What I don’t want to see is sustainability becoming a box-ticking exercise with ever growing bureaucracy. Let us be measured by our progress towards a sustainable future and not by the number of pages of regulations in place. But to achieve this, we need to be able to measure our progress!

July, 2024