Sustainable finance cannot be reduced to a single marketing promise

Presented as a major lever of the climate transition, sustainable finance is going through a difficult period. Yet, in a context still marked by the climate emergency and energy challenges, how can sustainable finance be given a clear direction again — a second wind? And what role could Switzerland play in this reconstruction?

We discuss this with Vincent Kaufmann, director of the Ethos Foundation.

Your foundation has for several years sought to move toward more sustainable finance… with what success, and what possible setbacks?

Since its creation in 1997, the Ethos Foundation has pursued a clear objective: to promote responsible and sustainable investment in the service of Swiss pension funds and their insureds, investors by definition oriented toward the very long term. In nearly three decades, we have broadened our activities, developed robust methodologies and maintained constant dialogue with listed companies on environmental, social and governance (ESG) issues.

The successes are numerous. Twenty years ago, for example, raising these topics with boards of directors was a challenge: we were often told that ESG issues were not the shareholders’ concern. Today, it is the companies themselves who come to us to discuss them.

The progress is tangible, but we remain clear-eyed: sustainable finance evolves in a shifting, sometimes politicized context. This requires us to uphold our approach and convictions to preserve both our ambition and our integrity.

Overall, the impression is that within large listed companies the climate issue is clearly not a priority for shareholders. A false or true impression?

We do not share that assessment. Many companies are implementing transition plans and have become much more transparent on the climate issue. Reading annual reports shows how much climate change represents both physical risks and transition risks for companies.

For investors as well, climate has become over the past ten years a central concern, particularly for those who, like pension funds, must manage systemic risks over the long term. That said, it is true that this priority does not always appear clearly in votes at general meetings (GMs). In Switzerland, for example, sustainability reports often receive more than 95% approval, which gives an impression of consensus — even though the transparency and quality of the published data often remain insufficient.

But if one looks at shareholder engagement, that is to say long-term dialogue, one finds that climate is today one of the most debated topics, with numerous demands made by investors. It is also worth noting that while some U.S. states criticize large asset managers for having “overly” integrated ESG, other investors — notably European — are now withdrawing from those same managers because they do not do enough. The recent example of the Dutch pension fund PFZW, which ended its partnership with BlackRock, is a striking illustration.

In Switzerland, the campaign we recently conducted with pension funds that are members of the Ethos Engagement Pool also illustrates this trend: we require asset managers to vote at GMs in accordance with the wishes and values of their principals, notably on issues related to sustainability. It is a clear way to use voting rights to support ambitious climate resolutions.

The withdrawal of large banks also helps distinguish sincere actors from those who had joined these commitments for reasons of image or compliance.

Is it really possible to invest sustainably while achieving sufficient returns?

Yes, absolutely. Numerous academic and empirical studies have shown that it is possible to reconcile financial performance and sustainability. At Ethos, we experience this daily. Our “Mid & Small Cap Suisse ” fund, for example, regularly outperforms its benchmark while applying strict ESG criteria. Our indices dedicated to sustainability and governance also show better performance than their reference indices over the long term.

It should not be forgotten: integrating sustainability and governance criteria into securities selection also helps avoid companies exposed to controversies. Thus, no Credit Suisse security had been included in our funds for years, long before the bank’s collapse.

Investing sustainably therefore does not mean making concessions, but rather managing risks more finely and identifying opportunities related to the ongoing transition. Markets increasingly recognize the value of companies capable of anticipating social and environmental challenges.

The growing troubles encountered by the NZBA appear to be a glaring setback for the banking sector in the pursuit of truly sustainable finance. Ten years after the Paris Agreement, how do you explain this?

We obviously regret the withdrawal of large banks in recent months. It is a negative signal that weakens collective efforts in favor of carbon neutrality. Banks indeed play a key role in the transition, not only through their own footprint but especially through their financing and investment decisions.

That said, if some withdraw so easily from climate alliances today, it is probably because they were not fully committed from the start. This also allows one to distinguish sincere actors from those who had adhered to these commitments for reasons of image or compliance.

There is also a phenomenon of “greenhushing,” when some institutions become more discreet about their commitments to avoid criticism, notably from the U.S. administration. In any case, one must judge by actual progress and not only by ambitions.

Is the main problem today not linked to the impression that sustainable finance — and even the word “sustainability” — have become catch‑alls without real substance?

That is a legitimate observation. The term “sustainable finance” has been widely used — sometimes abusively — in recent years, which creates confusion. That is precisely why we support regulatory efforts, notably European ones, that seek to clearly define what a sustainable investment is. It would be desirable to adopt the same approach in Switzerland. Without a rigorous definition, there is a risk that sustainable finance will lose credibility — to the detriment of truly committed actors and the transition as a whole.

Switzerland must make clear choices. This implies supporting an ambitious, regulated sustainable finance based on demanding standards.

Similarly to ESG criteria, should there not be a complete overhaul of the term sustainable finance, in order to chart a new path and recover the momentum that occurred in Paris in 2015?

More than a total overhaul, we believe it is necessary to clarify, structure and strengthen existing tools. ESG criteria are not perfect, but they constitute a useful foundation. They must be complemented by impact analyses, science-based targets and greater transparency.

We have, for example, developed a methodology to assess companies’ climate alignment. It is precisely this kind of concrete, robust and evolutive tool that can move sustainable finance in the right direction.

What actions could be taken to change the current narrative around sustainable finance, a narrative now tainted by the decline of the NZBA?

It is necessary to put sustainable finance back into its reality: a long-term, complex, sometimes frustrating, but indispensable approach. the retreat of some actors must not obscure structural advances nor the growing commitment of a large number of responsible investors, as well as the companies they finance.

Changing the narrative also means better communicating on concrete impacts, successes, but also challenges. Sustainable finance cannot be reduced to a mere marketing promise. It must become again a demanding ambition, based on evidence and accountability.

With events like “Building Bridges,” shouldn’t Switzerland do everything to secure a leadership role in the field of sustainable finance?

Yes, absolutely. Switzerland has all the assets to play a driving role: strong financial players, a quality academic network, a privileged diplomatic position and a tradition of stability. But it must make clear choices. This implies supporting an ambitious, regulated sustainable finance based on demanding standards. Events like Building Bridges can promote synergies, but they must also serve as a springboard toward concrete commitments.

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