Sustainable investments are on the rise, but does impact follow? The new UZH report on sustainable investing capabilities urges private banks to gear up their services to meet investor demands - and environmental targets. Most of the reviewed Swiss and European private banks should increase training of client advisors and offer more products with measurable impact.
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- The report is published by the Center for Sustainable Finance and Private Wealth at UZH and includes 20 actors.
The third edition of the Sustainable Investing Capabilities of Private Banks report maps the competence of private banks in sustainable investing by looking at their vision, offering and services. The report is published by the Center for Sustainable Finance and Private Wealth (CSP) at the University of Zurich and includes 20 actors such as UBS, Credit Suisse, Deutsche Bank, BNP Paribas or Barclays.
Sustainable investing offerings improve
The trend of developing products and increasing offerings in sustainable investments is expected to continue due to market demand and intensifying competition. Compared to 2018, the average number of dedicated sustainable investing funds offered by each individual bank increased from 30 to 58. The report finds that banks are actively developing better offerings by putting together entire portfolios consisting of sustainable investments only. Yet, the amount of assets deployed in sustainable investing is still a fraction – median of 2.8% – of the total assets under management of the participating banks.
"Even though we see an increase in offering, the development of processes, such as client engagement or impact reporting falls far behind," says Taeun Kwon, the lead researcher of the report and the Head of Wealth Manager Programs at CSP. Banks struggle to bridge the gap between promoting investments with high environmental, societal and government scores and actually showcasing the impact or change made through these investments.
Interest in active ownership could be stronger
Shareholder voting and engagement is increasingly becoming the norm within the investment industry. Despite this clear trend, the report found insufficient focus of private banks in selecting fund managers that engage and vote, especially on sustainability factors. "To demonstrate impact, banks should put serious effort into thinking of shareholder voting and engagement or the way a shareholder can ensure that the values guiding their investments are taken into account, for example, in the decision-making of the invested company," notes Kwon.
Service on sustainability remains underdeveloped
A key bottleneck in deploying more assets under management in sustainable investing offerings remains in the capacity and know-how of relationship managers and investment advisors. Much like last year, the report underscored the limited number of training opportunities and the fact that sustainable investment is still far from accounting a strategic management priority. In most cases, sustainability reporting was limited to a simple look through environmental, societal and government ratings, and lacks detailed assessments of the impacts of the investment and the modes supporting investors engagement. Only a third of all participating banks offer mandatory training for their client-facing employees, and even then, the training takes only 1-3 hours.
International agreements call for action
Furthermore, the regulatory changes taking place across Europe due to the Action Plan on Financing Sustainable Growth released by the European Commission will impact the entire financial industry. The report looks at private banking and areas of alignment to internationally agreed environmental goals, such as the Paris Agreement. "Other financial organizations are increasingly active in aligning their activities and processes with new policies and agreements," says Kwon. "But there is very little talk about private banks taking a proactive approach and asking what they could do to support their clients and the broader society in meeting these goals."
Private banks fail to proactively implement changes
According to the report, the focus of private banks tends to be on investment portfolio-based climate risk exposure rather than alignment with international climate goals. Banks repeatedly described going beyond portfolio risk assessment as complex and challenging.
The report leaves no doubt about the pivotal role of private banks in mobilizing wealth towards sustainable development and the work to be done to reach climate targets. "The demand for sustainable investments with real-world impact is growing. This is what our work and research with wealth owners underscores. The market is already there," Kwon concludes.
