Guidelines for the financial service providers on the integration of ESG-preferences and ESG-risks into investment advice and portfolio management

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These new guidelines define a uniform minimum standard within the industry for the consideration of ESG-preferences and ESG-risks in investment advice and portfolio management. The intention is to create transparency for clients on ESG in investment advice and portfolio management. This new self-regulation applies to all SBA members, might be adhered to voluntarily by non-members, and comes into force on 1 January 2023. These guidelines replace the “Guideline for the integration of ESG-considerations into the advisory process for private clients (2020)” as soon as they are implemented by the individual institution.
SBA members are subject to these guidelines. As regards the territorial scope of application, the provisions of the Financial Services Act (FinSA) and the Financial Services Ordinance (FinSO) apply analogously. These guidelines take precedence over all other regulations issued by other industry and business associations governing the treatment of financial instruments and financial services with regard to ESG-aspects.
These guidelines set minimum standards. Financial service providers are free to implement more comprehensive measures. If a financial service provider meets the relevant EU standards on ESG in the areas of investment advice and portfolio management, the requirements of these guidelines shall be deemed to have been met as well.
Professional clients can waive the application of the obligations set out in art. 10 and 13-14 of these guidelines by financial service providers to them. These guidelines do not apply to institutional clients.
In the clients’ interests for more sustainability, it is recommended that financial service providers generally provide them with information about the available ESG-investment solutions. Where ESG-investment solutions are concerned, during the general risk disclosure process, clients are to be informed also about the ESG-risks and -characteristics associated with financial instruments, respectively financial services. This strives to enable clients to understand the relevant ESG characteristics and, on this basis, be able to tolerate the risks associated with the ESG-investment solutions. The financial service provider also makes available to clients with ESG-preferences general information in relation to the ESG-preferences themselves as well as in relation to the offered ESG-investment solutions. At the same time, it can also provide information about which ESG-approaches are followed. With reference to the specific ESG-investment solution chosen by clients, the financial service provider informs them how their ESG-preferences are taken into consideration in this investment solution. Misleading or false information relating to the ESG-characteristics of financial instruments and investment solutions is prohibited.
The assessment of appropriateness or suitability that has to be conducted for investment advice or portfolio management applies equally to ESG-investment solutions. The financial service provider therefore ensures that the client’s ESG-preferences are analogously included in this assessment. When assessing the appropriateness or suitability, the financial service provider therefore enquires about the clients’ ESG-preferences. If there are several relationships or portfolios with a client, different ESG-preferences may be collected. In connection with portfolio management and portfolio-based investment advice, financial service providers strive to incorporate the collection of ESG-preferences seamlessly into the assessment of the investment objectives. In connection with transaction-based investment advice, such collection may be conducted as part of a one-time procedure and separately from determining the client’s knowledge and experience. For example, this may be done on an ad-hoc basis at the point of advice. Clients can be put into specific groups according to their ESG-preferences (e.g. very interested, interested, neutral; see Chapter 6 Documentation below). In the case of portfolio-based advice and portfolio management, ESG-preferences should not take precedence over the clients’ personal investment objectives. If clients do not express any specific ESG-preferences, and therefore take a neutral stance on the integration of ESG-criteria, the consideration of ESG-criteria in investment advice and portfolio management is not or only necessary if the financial service provider itself deems this appropriate. Clients who do not answer the question on ESG-preferences can be treated in the same way as clients who have given a negative reply and can also be considered to be “ESG-neutral”.
With portfolio-based investment advice and portfolio management, the financial service provider considers that the clients’ ESG-preferences are aligned with the ESG-characteristics of the investment solution, provided the overriding investment objectives are not violated. With transaction-based investment advice, the financial service provider considers that the clients’ ESG-preferences match the ESG-characteristics of the recommended financial instruments. If financial instruments or investment solutions do not align with the ESG-preferences expressed by clients (if there is no ESG-related alternative available for the required asset class, for example), this must be clearly highlighted and communicated to the clients in the relevant investment recommendation. Such transactions may only be executed once the clients have been informed of this mismatch. Such a deviation from the ESG-preferences can occur for an individual transaction and does not require a general adjustment of the client profile. Clients considered as “ESG-neutral” may be recommended ESG-investment solutions or financial instruments as well as investment solutions or financial instruments without ESG-criteria.
Financial service providers document in an appropriate fashion: a. whether clients have ESG-preferences or are ESG-neutral; b. if applicable, which ESG-preferences clients have; c. whether the ESG-characteristics of a given ESG-investment solution or financial instrument match the clients’ expressed ESG-preferences; d. that clients have been informed about the mismatch if financial instruments respectively investment solutions deviate from the ESG-preferences they have expressed.
The obligations regarding rendering of account stipulated in the FinSA apply analogously to the ascertainment of ESG-preferences. Upon request, financial service providers render account to clients with ESG-preferences on whether the ESG-investment solutions or financial instruments offered match their ESG-preferences.
According to the FinSA, financial service providers ensure that their staff possess the necessary skills, knowledge and experience to perform their work. Client advisors therefore need to obtain appropriate training, respectively possess the relevant knowledge concerning sustainability, ESG-investment solutions and applicable ESG-approaches. In particular, the relevant training for client advisors should include the following topics: a. Basics of ESG, including different ESG-risks b. Overview of international principles and regulations c. Knowledge of the ESG-approaches followed by the financial service provider in investment advice and portfolio management d. Specific knowledge and understanding of how the offered ESG-investment solutions satisfy the client’s ESG-preferences e. Knowledge of how existing investment solutions can be transitioned into ESG-investment solutions f. Basic understanding of greenwashing and how to avoid it
Verification of compliance with these guidelines should be included in the audit catalogue of the financial service provider’s internal audit. The audit should be carried out in accordance with the generally applicable audit frequency of the financial service provider. It should be based on the financial service provider’s risks, organisation and activities, but should be carried out at least every three years.
These guidelines replace the “Guideline for the integration of ESG-considerations into the advisory process for private clients (2020)” as soon as they are implemented by the individual institution. These guidelines come into force on 01.01.2023. The following transition periods apply: a. For training and professional development: until 01.01.2024; b. For new client relationships: until 01.01.2024; c. For existing client relationships: until 01.01.2025.

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