Guideline for the integration of ESG considerations into the advisory process for private clients

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These guidelines provide a framework on how financial service providers can successively integrate ESG considerations into the advisory process for private clients. The guidelines are essentially principles that can be applied in the context of the specific advisory processes of financial service providers. They are not legally binding and promote ESG considerations in the market, recognizing that individual institutions are on varying paths in fulfilling these recommendations.
Principle 1 – The financial service providers determine the client expectations with respect to ESG investing and document them as part of the advisory process. The bank has to assess the client’s potential investment restrictions, if there are any. A structured interaction with the client is necessary to determine their investment profile, which not only takes into account traditional preferences, but also ESG preferences in a standardised approach as defined individually by each financial service provider. Should a client express no interest in applying ESG criteria to their investments, this should also be adequately documented and, in such event, these guidelines are not applicable to this client relationship. However, in line with FinSA requirements regarding financial risk disclosure, ESG criteria should still be taken into account as far as they have an effect on the financial risks of an investment.
Principle 2 – The financial service providers provide an adequate overview of ESG considerations through client advisors. The financial service provider should ensure that their client advisors are adequately trained in ESG considerations. In addition to general expertise about the financial instruments and services offered to clients, the client advisor should be able to address the risks and opportunities related to ESG considerations and the intended effect of an investment (for example: “How does investing in this financial instrument address issues related to climate change?”).
Principle 3 – The financial service providers outline the range of ESG investment solutions as part of the advisory process. The financial service provider, where appropriate with the support of ESG experts, should ensure that the client understands the range of available investment solutions, and should discuss potential options based on the identified client preference(s), if any, for sustainable investing.
Principle 4 – The financial service providers match characteristics of ESG investment solutions with client expectations. FinSA addresses aspects such as suitability and appropriateness, which also apply for ESG investment solutions. In line with those regulatory requirements, the guidelines suggest that financial advisors should ensure that similar considerations are made with regard to the ESG preferences of the client. When assessing suitability of financial instruments with the client profile in the advisory process, the ESG preferences and ESG characteristics of financial instruments also need to be considered for the corresponding investment service. The client advisor, where appropriate with the support of ESG experts, strives to match the client’s ESG preferences with regard to ESG investment solutions through the ESG characteristics of specific financial instruments and services offered by the financial service provider. Deviations from the ESG preferences should be clearly identified, for instance if an ESG-related alternative is not available for the desired asset class. Clients should understand the ESG characteristics and should be willing to bear the related risks and consent if a particular investment deviates from their originally defined ESG preferences.
Principle 5 – The financial service providers build ESG investment solutions aligned with client expectations. Consistency should be sought between clients’ ESG preferences and the proposed financial instruments or services. Clients should be informed to what extent a financial instrument or service takes into account their ESG preferences. In accordance with FinSA, the client advisor should provide information on the characteristics and functioning of the financial instrument, as well as on the risk of losses and other relevant information for the client. Typically, this information is available in the form of a product document (such as a prospectus, KID, etc.).
Principle 6 – The financial service providers ensure diligent and transparent provision of services. The principles of diligent and transparent provision of services are set out in FinSA, in FinSO as the corresponding ordinance as well as in the SwissBanking selfregulation guidelines. Misleading or false product information is not permitted under FinSA and other relevant legislation. Best execution is a fundamental requirement under FinSA and also applies to ESG preferences, as far as the client has provided specific preferences on ESG financial instruments within the bank’s assessment of the client’s potential investment restrictions.
Approach in which a company’s or issuer’s ESG performance is compared with that of its peers based on a sustainability rating. All companies or issuers with a rating above a defined threshold are considered as investable.
ESG Engagement
Activity performed by shareholders (or representatives of shareholders) with the goal of convincing the management of investee companies to take account of ESG criteria so as to improve ESG performance and reduce risks.
ESG Integration
The explicit inclusion of ESG risks and opportunities into traditional financial analysis and investment decisions based on a systematic process and appropriate research sources.
ESG Voting
This refers to investors addressing concerns of ESG issues by actively exercising their voting rights based on ESG principles or an ESG policy.
An approach excluding companies, countries or other issuers based on activities considered not investable. Exclusion criteria (based on norms and values) can refer to financial instrument categories (e.g. weapons, tobacco), activities (e.g. animal testing), or business practices (e.g. severe violation of human rights, corruption).
Impact Investing
Impact investments are those made in companies, organisations and funds with the intention of generating social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets and target a range of returns from below market to market rate, depending upon the circumstances. Generally, impact investments have three main characteristics: intention to create impact, management of impacts and measurability of impacts.
Sustainable Thematic Investments
Investment in businesses contributing to sustainable solutions, both in environmental and social topics.