On 28 June 2022, the Swiss Bankers Association (SBA) issued new guidelines for integrating sustainability criteria into investment advice and portfolio management (ESG Integration Guidelines). These guidelines will enter into force on 1 January 2023 and will be binding to a certain extent. They contain various transition periods to facilitate their implementation within the applicable institutions (see below).
Binding vs. non-binding nature
The ESG Integration Guidelines are binding for SBA members only. Non-members can adopt these guidelines on a voluntary basis. In such a case, non-members should inform the SBA, which will then include them in the list published on the SBA's website and updated periodically. This public release of information may provide the opportunity for certain institutions to market their ESG commitment and gain some visibility, even if they are not members. However, the foregoing means that, strictly speaking, ESG Integration Guidelines do not set a minimum standard for the industry recognised by the Swiss Financial Market Supervisory Authority (FINMA) within the meaning of the Financial Market Supervision Act.
Under the ESG Integration Guidelines, the participating institutions must request that their clients provide respective ESG preferences and ensure matching (i.e. institutions must be able to offer clients appropriate ESG products and services to match the clients' preferences). These guidelines also set out obligations for the provision of information, documentation and accountability when establishing the clients' ESG preferences, and obligations for training and professional development of client advisors.
The ESG Integration Guidelines focus on discretionary and non-discretionary investment management. The other financial services defined in the Financial Services Act (FinSA) do not fall within the scope of the Guidelines. In addition, any compliance with corresponding EU standards will ensure automatic compliance with the ESG Integration Guidelines.
No revolution in client segmentation
The ESG Integration Guidelines are based on FinSA's "classic" segmentation system (i.e. private, professional and institutional clients) and, as such, apply the same mechanisms as FinSA. In other words, these guidelines do not apply to institutional clients and the duties of information, documentation and accountability can be waived by professional clients.
ESG preference levels
The ESG Integration Guidelines obviously deal with the suitability and appropriateness of assessment and matching for clients invested in ESG, but also address clients who do not have any particular view on ESG investment opportunities.
In particular, if a client does not express any specific ESG preference, such a client will be "marked" as neutral regarding ESG integration criteria. This means that such criteria will not be considered necessary for investment advice and portfolio management unless it is deemed appropriate by the institution. In the same vein, clients who do not answer questions on ESG-preferences can be treated as clients who have given a negative reply (i.e. they can be considered as "ESG neutral").
Importantly, ESG Integration Guidelines are not intended to exempt institutions from compliance with existing supervisory and civil law obligations. Interplay between regulatory requirements and civil law aspects still will have to be carefully observed.
Compliance with the ESG Integration Guidelines will be required. This implies that internal auditors will be in charge of verification. The audits will be carried out as frequently as generally applicable, but at least every three years.
The ESG Integration Guidelines will replace the current 2020 Guidelines for the integration of ESG considerations into the advisory process for private clients as soon as institutions implement them. The current guidelines are non-binding, including for SBA members.
The kick-off of the Guidelines on 1 January 2023 will trigger the following transitional periods: (i) from 1 January 2024, requirements on training and professional development and those applicable to new clients; and (ii) from 1 January 2025, requirements applicable to existing clients.
The ESG Integration Guidelines are not the only set of rules issued by the SBA. They were published along with the "Guidelines for mortgage providers on the promotion of energy efficiency", which will enter into force on 1 January 2023 for all advice provided to private individuals seeking financing for owner-occupied single-family and holiday homes.
Like the ESG Integration Guidelines, these "energy efficiency guidelines" do not set a minimal standard for the industry. However, the self-regulation produced by the SBA and other industry bodies as well as the number of FINMA's communications are constantly growing. This demonstrates not only the concern of stakeholders regarding sustainability but also the gradual implementation of measures to protect clients and the Swiss market, particularly from the risk of greenwashing.
For more information on sustainability and ESG regulations in Switzerland, contact your CMS client partner or local CMS expert: