Interview with Falko Paetzold

Falko, Which are the main levers of private wealth to contribute to a sustainable economy?

The topic of different “levers” to drive change is a very important emerging topic in the private wealth space right now. We speak about “polycapital” in that regard.

The most known lever is economic capital, i.e., investment capital, philanthropic giving, and possibly direct operating businesses. Private wealth holders have a super-power in that they are free in where to deploy capital. This freedom enables them l to fund highly catalytic projects. Such projects often have unproven business cases that come with higher risk.  

On top of the deployment of capital, private wealth owners have other forms of influence: they often have a high status in society and thereby the ability to crowd in other wealth holders; or they can offer their time and follow a career in which they directly engage operationally. There are many examples of wealth owners which act as social entrepreneurs, leaders of foundations and networks, etc., and achieve great impact through such activities.

It depends on the individual wealth holder which lever is the appropriate one and when is the right time to apply them. CSP North America teaches a new wealth holder program about the different levers together with partners at MIT.

Why is it necessary to educate private clients about sustainable finance?

The big downside in private wealth is that while wealth holders are often free, in where they deploy capital and thereby have the potential to bring about change, they are often dramatically under-resourced in terms of teams, advice, processes. That is fundamentally different to the situation of many institutional investors, including many foundations, that have large teams and strong processes, but are stifled in their ability to be catalytic, due to risk-aversion, inertia, or policy.

Therefore, it is key to support wealth holders in building their capacity, both in terms of their own knowledge and tools as well as their ability to find the right advisors and build teams. In our view, that is the key barrier for more private capital flowing towards more impact.

Is private wealth the silver bullet closing the often-cited financing gap for achieving the SDGs? How should private investors interact with other players in working towards this goal?

As we are building out our wealth holder programs on systems change investing and polycapital, we are learning that there is no silver bullet and there will be none. A systemic challenge such as achieving the SDGs requires careful mapping of the system in question, and the activation of the right leverage points by the right actors. Due to the superpowers of wealth owners mentioned above, private wealth plays a critical role herein – while the interaction with other actors is key. We have been running an annual program on Blended Finance for many years that convenes many development finance institutions and in which we try to foster the interaction with private wealth. Unfortunately, that turns out to be quite difficult, due to the under-resourcing of many impact-driven wealth holders that I mentioned above, but also due to the different mindsets of these actors; they really live in different worlds. What is urgently needed is intermediaries that close that gap, such as private banks.

Where do you see Switzerland’s position in this area relative to other financial centres?

Switzerland was clearly leading on the product and advisory front around sustainable investing for many years, albeit that the market was still somewhat nascent. From our work in Asia and the Americas I must say that I see Switzerland falling behind. In particular, Singapore is driving the upskilling of its financial workforce and the product landscape systematically and successfully, and words are met with concrete action and substantial resources. I don’t see this happening in Switzerland.

Do you see the need for further standards or regulatory action to further promote sustainable finance?

Again, from what we see in Singapore, I am not sure about the need for regulatory action. It depends on the aspect. What is surely needed is a standardization of ESG data reporting by companies, and a certain level of standardisation in the usage of terms like impact. What we see misguided is the requirement of advisors to ask clients about their interest in sustainable finance – which was a key missing piece in principle. We see that questions often aren’t framed correctly and many client advisors lack the capacity to lead that type of conversation in an efficient and effective manner. The result is currently a mess with many clients being left confused. Singapore, on the contrary, simply motivates and incentivises its private banks to truly upskill their advisors’ ability to lead meaningful conversations about sustainable investments with clients. CSP Singapore trained more than 500 advisors on that in Singapore and Hong Kong in 2023 alone and the results have been very promising, while Swiss banks are absorbed with technicalities and scale back this type of training. The result is that Swiss advisors, as we hear from our wealth holder community, still remain largely unable and unwilling to hold those conversations with clients in a productive manner, and many clients are disgruntled and discouraged.

How can SSF further promote positive development in these areas?

It is key that SSF provides clear guidance on the usage of different terms in sustainable investing. Through its annual Market Study, SSF brings information to the market on key developments in this field. A practitioner’s exchange on best-practice client advisory processes and achieved results could also help to improve processes over time.

June, 2024