There is no doubt that the topic of sustainable finance has been an absolute priority in the financial industry for years.

A lot of energy and resources have been invested in greenwashing by industries, regulators and the media. This was the right thing to do: there is no room for greenwashing in the Swiss financial industry.

With the self-regulation of the three industry associations Asset Management Association Switzerland (AMAS), Swiss Bankers Association (SBA) and Swiss Insurance Association (SIA), effective instruments are now in place so that greenwashing should no longer be an issue in the Swiss financial centre. The focus must now return to the central mission of sustainable finance: On impact. The effective climate contribution of self-regulation is ultimately minimal. Climate change is a real problem, and we will not solve it by describing the problem as precisely as possible.

Investment stewardship, for example with high-emission companies, is much more effective: Asset managers are increasingly exerting direct influence on the management of companies in which they are invested through active voting and engagement to make the business model more emission-free. Together with Swiss Sustainable Finance, AMAS has drawn up the Swiss Stewardship Code as a guideline for modern investment stewardship for Swiss financial players.

Given the immense amount of capital required to finance the transformation, this is not enough. However, how private capital can be invested effectively and what role the financial industry, and asset managers in particular, should play in this is sometimes a source of irritating debate.

Anyone who demands that asset managers should simply provide the necessary capital has not understood the financial industry. The corresponding capital belongs to the clients. Asset managers cannot simply dispose of it without violating fundamental liberal principles and property rights.

Asset managers have a fiduciary duty to act in the best interests of their clients and to achieve a return and long-term capital appreciation on the invested capital at an acceptable level of risk. The expectations in sustainable finance are very similar: invested capital can certainly have a positive impact. But here too: The asset management industry can and should offer appropriate investment products, but ultimately it is the customer who decides.

In developing countries in particular, the need for capital for climate protection and sustainability projects is very high. One of the reasons why the flow of capital in this direction is stagnating is that the investment risks associated with such projects are difficult to assess and there is a lack of suitable investment vehicles. ‘Blended finance’ can play a key role here: State and private investors jointly finance such a project but invest in different tranches with different risks and expected returns. If the state is the first to assume any defaults and is compensated accordingly, a project becomes investable for a wide range of parties and private capital can be made available on a much larger scale. Asset managers can play an important role here – provided the framework conditions are right and sufficiently large investment volumes are available.

– Author: Adrian Schatzmann

– This contribution is brought to you by Asset Management Association Switzerland (AMAS), a valued founding partner & event partner of Building Bridges 2024.