Integration of clients’ ESG preferences into investment advice and portfolio management: overview of the new Guidelines of the Swiss Bankers Association (Part I)

On January 1, 2023, the new “Guidelines for the financial service providers on the integration of ESG-preferences and ESG-risks into investment advice and portfolio management” from the Swiss Bankers Association (SBA) came into force. Transitional periods apply to enable the financial institutions concerned to implement these new rules into their processes. This paper provides a preliminary overview of the main features of the SBA Guidelines.

 

1. Scope of application

 

Unlike the approach followed in the European Union to foster climate transition, Switzerland tends to favor solutions based on self-regulations issued by industry associations such as the Swiss Bankers Association (SBA) rather than adopting hard law rules.

 

A first version of the SBA Guidelines about the integration of client’s ESG preferences was already adopted in June 2020.[1] Unlike the version that came into force in 2023, the previous version of the Guidelines only contained non-binding recommendations.

 

The Guidelines are mandatory for SBA members (mainly Swiss banks and securities firms). Non-members may apply the SBA Guidelines voluntarily. The SBA keeps a list of the entities that have opted to voluntarily comply with the Guidelines.[2]

 

Given the lack of equivalent (self-)regulation for wealth managers, one may anticipate that the SBA Guidelines will set a standard for the asset management industry at large.

 

2. Know your client’s ESG preferences

Pursuant to the SBA Guidelines, the client’s ESG preferences refer to the preferences as to whether and which ESG characteristics should be integrated into the client’s investment solutions.

 

The objective of the Guidelines is twofold: (1) to define a uniform minimum standard within the industry and (2) to prevent greenwashing and, as a result, participate to the promotion of the Swiss financial center and enhance its reputation.

 

To achieve these goals, the obligations of the Guidelines cover the following issues:

 

• Duty of information: The financial service provider must provide its clients with information on ESG related products. This obligation does not imply that financial service providers necessarily implement sustainable investment solutions, but it does require that the financial service provider and the client engage in a discussion about sustainable investments, their costs and the potential risks.

 

• Defining the client’s ESG preferences: As a first step (assessment phase), the financial service provider must determine the client’s interest in ESG investments. The client can then be classified into one of three categories: very interested, interested or neutral, depending on the expressed preferences. If the client does indeed express an interest in the possibility of investing in ESG products, the second phase (matching) consists of examining whether (i) the clients’ ESG preferences are aligned with the ESG characteristics of the applicable investment solution, provided the overriding investment objectives are not violated (in case of portfolio-based investment advice and portfolio management) or (ii) the clients’ ESG-preferences match the ESG-characteristics of the recommended financial instruments (in case of transaction-based investment advice).

 

• Documentation: In line with the obligation of documentation set forth in the Swiss Federal Financial Services Act, the financial service provider must document the information collected regarding the client’s ESG preferences as well as whether there is a mismatch between the contemplated financial instruments, respectively the applicable investment solutions, and the ESG preferences expressed by the client.

 

• Reporting: Upon request from clients who have expressed ESG preferences, the financial service provider must report to the client on whether the ESG-investment solutions or the financial instruments offered match the client’s ESG preferences.

 

• Training: Financial service providers must offer necessary training so that their client advisors have the appropriate knowledge concerning sustainability, ESG investment solutions and the applicable ESG approaches.

Mirroring the approach of the Swiss Federal Financial Services Act, the SBA Guidelines distinguish between private, professional and institutional clients. The Guidelines do not apply to the latter. As for professional clients, they can waive the obligations listed above, except for the obligation to define the client’s ESG preferences.

 

3. Implementation requirements and timeline

The SBA Guidelines came into force on January 1, 2023, but provide for various transitional periods to allow the financial institutions concerned to implement the new rules. Implementing these rules may require a substantial amount of work. First, the financial institution has to reflect on its positioning in terms of ESG investment and, when necessary, define the ESG strategies it wishes to market. The financial institution also has to acquire sufficient know-how in the field of sustainable investment. The implementation process then requires internal and contractual documentation to be adjusted and updated. The financial institutions concerned will also have to set up the necessary training courses for staff involved in advising clients.

 

The following transition periods apply:

 

• training of the client advisors: deadline until January 1, 2024;
• collection of ESG preferences and integration of this information in the portfolio management / investment advice services: (a) for new clients: deadline until January 1, 2024; (b) for existing clients: deadline until January 1, 2025.

The transitional period applicable to existing clients does not concern the procedure of portfolio alignment for clients with an asset management mandate. In other words, if a client wishes to transition from a “non-ESG” to a “ESG portfolio”, the process – which can be relatively long and complex, depending on the composition of the portfolio – can be completed after January 1, 2025.

 

Your contacts at OBERSON ABELS SA

Antoine Amiguet

T +41 58 258 88 88

 

Philipp Fischer

T +41 58 258 88 88

 

Sonia De la Fuente

T +41 58 258 88 88

[1]     Guideline for the integration of ESG-considerations into the advisory process for private clients (2020).

[2]     The list is available here: https://www.swissbanking.ch/en/topics/sustainable-finance/self-regulation-in-sustainable-finance.