As the morning coffee was being poured, discussions on an important topic were getting underway.
Those discussions took place at a recent FE fundinfo breakfast-briefing in Switzerland, where the aim was to shed some, much needed, light on the evolving landscape of Swiss Climate Scores (SCS).
Seeking insights into how major asset managers and distributors are responding to the call for self-regulation in the realm of sustainable finance, the views shared during this morning session provided valuable perspectives on critical aspects of Swiss Climate Scores implementation and its future trajectory.
So what were those insights?
Are Swiss Climate Scores to be produced as stand-alone documents?
One of the central questions that emerged during the briefing was whether SCS reports should be developed as stand-alone documents or integrated into existing ESG reporting. The consensus varied among industry participants.
The majority found merit in creating stand-alone reports for more efficient distribution, while others preferred integration, especially for institutional portfolios or asset managers who do not rely on external distributors. This decision hinges on factors such as distribution efficiency and audience preference.
How often should Swiss Climate Score reports be produced?
The briefing then delved into the frequency of SCS report production. While the AMAS recommends an annual cycle, there's a prevailing sentiment that this frequency may be insufficient. Swiss Climate Score reports are based on snapshot data, unlike the weighted average data required for Sustainable Finance Disclosure Regulation (SFDR) reporting.
Consequently, the market appears to be gravitating towards a quarterly or even monthly reporting cycle as the new standard. This change reflects the need for real-time information in the dynamic world of sustainable finance.
Which products should be reported on?
A fundamental debate at the briefing revolved around the scope of products to be covered by SCS reporting.
Unlike the EU, where non-sustainable products are excluded from sustainability reporting to combat greenwashing, SCS emphasises transparency and comparability.
It urges the inclusion of all products, regardless of their sustainability intent. This approach aligns with the broader goal of fostering transparency and promoting awareness of both good and bad environmental footprints as well as the governmental suggestion to publish for every investment where it makes sense to publish it.
What are the main drivers to produce Swiss Climate Scores reports?
Given the lack of mandatory regulatory requirements, the primary impetus for SCS reporting stems from peer pressure and industry-driven incentives. Leading organisations are expected to go live with their SCS reports by the end of 2023, catalyzing adoption across the sector.
Distributors are also playing a role by collecting SCS reports. Additionally, institutional investors, such as Swiss pension funds, are starting to demand this data to meet their ASIP reporting obligations, further propelling the adoption of SCS reporting.
How will the Swiss Climate Scores be used?
The SCS reports are seen as valuable tools for informing and educating advisers, client relationship managers (CRMs), and clients themselves. They facilitate comparability, although it is important to acknowledge that different providers may have access to varying data and employ distinct methodologies.
On the distribution side, SCS data has the potential to enrich fund research through filtering mechanisms, aiding investors in making more informed decisions.
How resource-intensive has the implementation been?
Though SCS reporting is relatively concise compared to EU requirements, its implementation is not to be underestimated. Participants have found it to be a time and resource-intensive process. As such, it is advised to automate processes as much as possible and carefully consider the 'buy or build' decision regarding the necessary infrastructure.
Global Warming Alignment
One of the most discussed aspects of SCS reports is the Implied Temperature Rise (ITR) metric under Global Warming Alignment. Opinions on this metric vary, with some expressing concerns about its abstract nature and complexity.
Others view it as a valuable metric since it consolidates multiple indicators into one, providing a holistic view and reflecting transitional investments. However, concerns about articulating this complex metric to clients persist.
The section on Credible Climate Stewardship and engagement data poses challenges, particularly for fund of funds (FOF) structures. Collecting and quantifying engagement efforts within organisations, especially those involving third-party fund managers, remains a complex task.
Some industry participants have resorted to reporting "N/A" for the moment, allowing them to engage with SCS despite lacking complete engagement data.
What's next and how will the SCS evolve?
The SCS is poised to establish a market trend and standard in Switzerland. However, concerns linger regarding the expectation of a version 1.1 while many are still grappling with the initial implementation.
In the long run, an evolution of SCS is desired, especially in terms of integrating additional asset classes and aligning with recommendations from the ASIP. The industry eagerly awaits how this nascent initiative will evolve to shape the future of sustainable finance in Switzerland.
FE fundinfo's breakfast briefing on Swiss Climate Scores provided a valuable platform for industry stakeholders to discuss and dissect the evolving landscape of sustainable finance in Switzerland.
As SCS continues to gain traction, its future evolution will be closely watched, with the hope of further enhancing transparency, comparability, and sustainable investment practices in the Swiss financial sector.
Steven Kennedy, Senior PR Manager, FE fundinfo