The European Union is committed to achieving ambitious climate and energy-saving targets by 2030. It’s also looking to use Finance as a key lever to push industries to adopt green behaviors. Green Finance will no longer be a marketing strategy. Instead, it is a defined framework that governments can and will activate to achieve the objectives of the Paris Climate Agreement.
The new regulatory framework encourages investment in products and companies that promote a sustainable economy. The rules will impact a wide range of products – from investment funds to insurance – and providers will be expected to establish their own frameworks to ease and encourage green investment.
Changes are underway
The EU is already adapting directives: the adjusted Shareholders Directive (SRD II) now mandates transparency regarding shareholders, (placing an extra duty on intermediaries such as banks), and alignment of directors’ remuneration policy with long-term interests. It aims to promote an environment where investment strategies focus on long term growth, aligned with long-term objectives and performance. It comes into force in September 2020.
To stamp their financial products as “green”, organizations will have to introduce Environmental, Social and Governance (ESG) factors into investment policies and risk management.
Where does Switzerland stand?
Despite there being no dedicated regulation (yet), Switzerland is in any case moving toward Green Finance: in 2018, the volume of sustainable investment surged to CHF 390.6 billion, a huge year-on-year growth rate of 82%. Sustainable funds account for about 8.7% of the Swiss Funds market.
Organizations in Switzerland have in fact already begun work on a framework to encourage green or sustainable products and promote transparency. Switzerland-based providers are also complying with EU rules (like SRD II) or guidelines, owing to the close links between Switzerland and the EU financial markets.
An opportunity, not a constraint
Much is at stake globally. Younger generations, in particular, are mobilizing around the challenges of environment and climate. There are opportunities here for the finance industry – which since the financial crisis has encountered a lack of trust in its practices owing to the . Since the last financial crisis, the financial system is also suffering from a lack of trust and a defiance regarding its practices and ethics. This new regulatory journey should not be viewed just as a set of additional constraints. It is a way to become a key, sustainable player in the green economy, to restore confidence in investments and funding practices, and to capture the hearts and minds of a new generation through meaningful financial investments.
To find out how Cognizant expertise can help your organization manage the challenges of Green Finance, contact Audrey Miguel.