How well do Swiss banks advise their clients about sustainable investments? Poorly, according to a new survey. There are also striking deficits in advisors’ knowledge, offers and products.
Sustainability is on everyone’s lips. On the one hand, the rising frequency of extreme weather events bears testimony to the earth’s climatic instability, prompting researchers to warn of a climatic collapse. On the other, politicians are calling on the financial industry to use its billions to encourage sustainable development. In their search for new markets and returns, many financial institutions have started "greenwashing" their products. In other words, the financial products do not live up to their claims. Greenpeace is taking action against this. With the help of Greenpeace activists, the Swiss branch of the global environmental organisation conducted a mystery shopping investigation. The findings: the “climate-friendly” investment products recommended to the testers were essentially incompatible with the Paris Climate Agreement. Overall, the quality of the advice on sustainable investing is poor. For Greenpeace Switzerland, these findings are further proof that, with its espousal of sustainable finance, the Swiss financial industry is practising greenwashing.
Mystery shopping to assess the quality of consulting and products
Greenpeace Switzerland sent 33 testers to investigate Swiss banks and portfolio managers. The testers presented themselves as interested investors and arranged a meeting with the the financial institution of their choice. The mystery shopping focused on two questions: firstly, what was the quality of the banks’ advice on sustainable and climate-friendly investments and, secondly, whether the investment products marketed as climate-friendly actually promote a sustainable economy.
A survey by Greenpeace Switzerland and Greenpeace Luxembourg shows that the so-called sustainable investment funds have not yet succeeded in directing significantly more capital towards a sustainable economy than conventional funds. Yet redirecting financial flows through sustainable investments is an important factor in combatting the climate crisis.
Sustainability is not a talking point in advisory meetings
The testers had 43 meetings with a total of 19 banks (see list). “The quality of the consultations on sustainable investing is poor at most financial institutions”, says Larissa Marti, an expert on finance at Greenpeace Switzerland. According to the report, only half of the advisors asked the testers at the beginning of the meeting whether sustainability was a concern. In the other cases, the testers had to actively indicate their preference, and explicitly request climate-friendly investment solutions, i.e. solutions compatible with the Paris Climate Agreement. The testers were offered a total of ten products which were purported to satisfy those criteria. Subsequent analysis failed to show, however, that the investment products are climate friendly.
Greenpeace Switzerland tested the following 19 banks:
Advisors have inadequate knowledge
The mystery shopping exercise showed that advisors do not know enough about sustainable investment. Some do not even know what the Paris Climate Agreement is, although that Agreement refers specifically to the finance industry. Less than one third of the meetings left the testers with the feeling that they could invest their money in keeping with their own sustainability preferences. The quality of advice was deemed poor in about two thirds of the cases, with the testers unable to see why the recommended products were advertised as sustainable or climate-friendly.
Many funds are incompatible with the Paris Climate Agreement
The deficits of the banks were even greater as regards their purportedly climate-friendly investment products. This was clear from the findings of the in-depth analysis of the ten products the testers said had been recommended to them as being climate-friendly. The information made publicly available on the banks’ websites and in the documentation provided was examined to assess the actual climate compatibility of the products.
Greenpeace criticises that none of the recommended investment products specify compliance with the Paris climate goals as a reference criterion. “That is frightenening” says Larissa Marti. “Climate-friendliness implies compatibility with the Paris Climate Agreement. So products marketed as climate-friendly must perforce be compatible with Paris. Otherwise, financial institutions are practising greenwashing.”
Lack of transparency in the implementation of investment strategies
“In practice, the financial products designated as climate-friendly are only marginally more climate-friendly than conventional products. Moreover, there is significant lack of transparency in how portfolio managers apply the investment strategies to ensure the sustainability of the products”, Greenpeace adds. The environmentalist organisation considers it a huge problem that nearly 60% of the analysed funds marketed as climate-friendly only apply sustainability criteria to a portion of their portfolio. As a result, such funds risk investing in companies detrimental to the climate. What is more, the advertising claims for certain products were deemed misleading, as evidenced by the investigation of two products of UBS and Credit Suisse. These promised a climate impact that they could not actually have.
The Swiss finance centre cannot be a leader in sustainable finance
The mystery shopping exercise clearly demonstrated that investing in a manner compatible with the Paris Agreement is currently almost impossible. “This conclusion is in stark contrast to the professed goal of the Swiss financial center to be a leader in sustainable finance”, says Peter Haberstich, project manager for climate and finance at Greenpeace Switzerland. “With their so-called sustainable capital investments, financial institutions are currently barely contributing anything at all to making the real economy climate-friendly, even though the Paris Agreement has long called for all financial flows to be climate-friendly.”
The financial industry is challenged
Global warming is progressing faster than had been expected. Greenhouse gas emissions must drop significantly and rapidly, as the Intergovernmental Panel on Climate Change recently emphasised. “Banks must therefore quickly develop and launch new products which direct capital flows to a climate-friendly economy and contribute to resolving the climate crisis”, says Peter Haberstich. He also believes that financial institutions have a duty to train their advisors to be able to address clients’ concerns on the sustainability of their investments and ensure that more money flows into an economy compatible with the goals of the Paris Climate Agreement.
Greenpeace also demands that the Federal Council and Parliament define the minimum requirements for sustainable investments: investment funds designated as sustainable must be invested in economic activities that are compatible, in terms of the reduction in greenhouse gas emissions, with the Paris climate goals and a maximum global warming of 1.5 degrees Celsius.
