Q1: What is sustainable finance?
Sustainable finance considers environmental, social, and governance (ESG) characteristics alongside traditional financial risk and return analysis. The level of sustainability varies across financial products.
Due to the lack of standardized sustainability ratings, government guidelines aim to increase transparency. European and Swiss authorities issued guidelines for the disclosure of sustainability characteristics that apply to most investment funds sold in Switzerland.
Q2: What are funds that account only for sustainability risk alongside financial risk and return analysis?
These funds consider ESG-related issues that can negatively impact a firm’s financial performance. For example, they consider whether a company is exposed to the negative effects of climate legislation (e.g., higher CO2 taxes) or avoid investments in companies that are frequently affected by natural disasters due to climate change.
A fund that considers sustainability-related risks in addition to the financial risk analysis pursues a purely financial investment objective and is not considered a sustainable fund.
Q3: What are funds with a medium degree of sustainability (also called “light green”)?
- In addition to financial returns, these funds also take sustainability into account as an additional criterion.
- These funds include firms that show positive environmental or social characteristics (e.g. low carbon emissions or fair wages).
- The firms do not need to meet a specific sustainability target (e.g. a specific emission goal).
Q4: What are funds with a high degree of sustainability (also called “dark green”)?
These funds have two goals: to meet a sustainability objective and to achieve financial gains. Regarding their, sustainability funds must meet two conditions:
(i) Declare and monitor a sustainable objective: firms in these funds must contribute to either a specific environmental or social objective (e.g., meet a specific target for CO2 emissions).
(ii) The firms in the fund do not harm any other sustainability dimension (e.g., a fund promoting fair wages must ensure that its firms do not cause any environmental harm).
Q5: When does a fund directly impact the sustainability performance of firms (e.g. on CO2 emissions)?
A sustainable fund (light or dark green) is not obliged to influence the firms’ sustainability strategy, e.g., CO2 emissions may remain unchanged following investment.
A fund only impacts the sustainability of firms by
- Obliging low-sustainability firms to change (e.g. introducing clean technologies like CO2-neutral production).
- Investing in new ventures (e.g. building a new wind park).
