Despite challenges, the Swiss market for sustainable investment funds thrives, driven by self-regulation and rising private investor demand.
In a curious twist of fate, the Swiss market for sustainable investment funds continues to flourish, even as the broader discourse surrounding sustainability appears to be losing its luster. This phenomenon can be attributed, in part, to the self-regulatory measures implemented to mitigate greenwashing and to enhance the integration of Environmental, Social, and Governance (ESG) criteria within investment advisory practices. As a result, sustainable finance remains a salient trend in Switzerland, buoyed by an increasing appetite from private investors.
Despite the apparent decline in public enthusiasm for sustainability—a sentiment that seasoned observers might attribute to the cyclical nature of issue-attention, as articulated by the esteemed political economist Anthony Downs in 1972—the urgency of ecological concerns persists unabated. We find ourselves in a relentless race against time, marked by unprecedented temperature records and an alarming frequency of extreme weather events. A recent case in point: on October 29, 2024, Chiva, Spain, experienced a staggering 491 millimeters of rainfall in just eight hours, eclipsing the annual average of 456 millimeters.
Yet, as the narrative of sustainable finance unfolds, one might wonder if we are witnessing the proverbial pendulum swing back towards apathy. Headlines from reputable media outlets suggest a growing disinterest in green investments, particularly in the United States. For instance, BlackRock, the world’s largest asset manager, once proclaimed sustainability as the new standard for investing, only to have its CEO, Larry Fink, recently characterize ESG as a political battleground. This raises the provocative question: Is it time to bid adieu to sustainable finance? Or, as the Financial Times provocatively queried, “Who killed the ESG Party?”
To navigate these inquiries, it is prudent to eschew sensational headlines in favor of empirical data. The trajectory of sustainable investment funds—often regarded as a barometer of interest—reveals a nuanced landscape. While the United States has experienced a downturn in recent quarters, Switzerland’s growth, albeit slowed, remains positive. The Sustainable Investments Study 2024, conducted by the Lucerne University of Applied Sciences and Arts, underscores this point, noting that the growth of sustainable funds is converging with that of conventional funds.
A closer examination of the Swiss market reveals a more optimistic narrative. Although sustainable funds constitute a mere 56 percent of the product offerings from domestic retail banks, they have garnered an impressive 87 percent of total net inflows over the past year. This trend suggests a marked preference among private investors for sustainable options when reallocating capital. The impetus behind this shift can be largely attributed to the self-regulatory framework established by the Swiss Bankers Association, the Asset Management Association Switzerland, and the Swiss Insurance Association, aimed at combating greenwashing.
Prior to the Federal Council’s position on greenwashing, these industry associations proactively defined actionable measures to ensure that clients receive sound advice regarding sustainability. This includes inquiries into clients’ ESG preferences and aligning offered products and services accordingly. Furthermore, member institutions are mandated to incorporate ESG considerations into the training and continuing education of their client advisors. The success of this initiative is evidenced by the robust inflows into sustainable funds at Swiss retail banks, as highlighted in the Sustainable Investments Study 2024.
Moreover, the self-regulatory approach has extended beyond investment advice to encompass mortgage providers. The “Guidelines for Mortgage Providers to Promote Energy Efficiency” compel mortgage advisors to address the long-term value retention and energy efficiency of financed properties. The Federal Office for the Environment (FOEN) has noted a significant impact from this initiative, with over 70 percent of participating banks committing to fully implement the guidelines by 2024.
The narrative surrounding sustainable finance in Switzerland is far from bleak. The integration of sustainability into banking services has become entrenched, driven by robust consumer demand and the recognition of the strategic importance of ESG factors in an increasingly volatile and uncertain world. Thus, while the broader discourse may ebb and flow, sustainable finance in Switzerland appears poised to endure, adapting and evolving in response to both market dynamics and societal expectations.
