The third Sustainable Finance Roundtable, hosted by Finalix, was held in Zürich on June 14, 2023. The event attracted a diverse range of participants from private banking, wealth management, asset management, financial information and research companies as well as academic institutions. Compared to the previous roundtables, this event displayed a growing but skeptical interest in sustainable finance regulations, mainly driven by the complexity of the EU Action Plan Regulations and the perceived trade-off between being regulatory compliant, but at the same time meeting personal sustainability preferences of customers.
Participants pointed out the global inconsistency in ESG regulatory standards as a critical concern, adding to the complexity and confusion in the sustainable finance sector. This complexity extends to the client advisory level where advisors often find it challenging to explain the requirements of sustainable finance regulations to clients, leading to a dampened interest in sustainable investing. Apart from the complexity of educating the client, capturing his preferences is above all the problem, that if the bank is following the EU Action Plan regulations, then the product offering is almost non-existable and the client faces a lot of restrictions in the investment universe. This reflects a view that current regulatory efforts, have somewhat failed to effectively channel private capital into sustainable investments.
A recurring theme throughout the roundtable was the need to change the approach from an inside-out perspective to an outside-in one. This entails focusing on understanding client needs and preferences first, thus promoting a client-centric approach in sustainable finance through an additional offering for sustainable products complementary to fulfilling regulatory requirements. However, for small and medium-sized banks, creating their own sustainability offering poses a challenge due to limited capacity. Moreover, the impending importance of sustainability labelling, set to gain traction this summer, further complicates the landscape.
One of the key criticisms of the current regulatory approach is its intent to enforce certain behaviours, such as sustainable investing and by this not sufficiently encouraging self-responsibility, which is supposed to be a key driver to steer more private capital into sustainable investing.
The ESG data was another major concern. With the advent of the EU Action Plan, ESG data is perceived to have lost its value as it has been reduced to a solely regulatory requirement. Further compliant ESG data in the sense of satisfying regulatory requirements, are still not sufficiently available.
In terms of Switzerland’s regulatory environment, participants discussed the self-regulations of the Swiss Bankers Association (SBA), the Swiss Climate Scores, and the current state of ESG and sustainability regulations. They highlighted the need for alignment with global standards, and for regulation to effectively support sustainable development without stifling the growth of the sector.
We look forward to continuing these important discussions in our future roundtables.
