Geneva's SDG Pride Parade
Financial Geneva styles itself as the Left Bank (of Lake Leman and the Rhone) with international Geneva as the Right Bank. They want to come together under the banner of sustainable development.
But where are the people between these two sides of Geneva?
On 10 October 2019, as the top people of the two groups met at the old Force Motrices (in the middle of the Rhone) for what was billed as a Building Bridges Summit, at least 500 madcapped hoi polloi were on the streets, marching with banners and dancing across Bel-Air.
It was Switzerland's first Mad Pride parade, staged on World Mental Health Day.
Contributing editor Peter Hulm brings them all together in this special report for Global Geneva supporters (2500 words).
That Mad Pride march was not as irrelevant as it might seem to the financiers, company bosses and international organization heads gathered in Force Motrices.
André Hoffmann, Vice-Chairman of Roche, the pharmaceutical giant, was at the summit. He made headlines with his declaration that "short-term profit maximization has destroyed the planet, environmentally and socially." (LINK). The audience of 900 gave him "a sudden round of applause", reported The New York Times. "Capitalism must reinvent itself," he said.
He also declared that Roche had adopted a new strategy based not just on profit but on improving the health of patients. In the U.S., he said, Roche's salesforce has its pay tied closer to patient outcomes rather than numbers of pills sold.
The marchers, too, were calling for a more humane approach to medicine, recognising their right to independence and diversity instead of being pejoratively labelled as mad.
The Summit, to continue in the medical vein, was designed partly to take a health check on Geneva's financial sector from the perspective of the UN's Sustainable Development Goals (SDGs), which themselves are currently headed towards the deadline of 2030 facing painful extinction from under-medication.
The question of Geneva's financial future
The other (non-SDG) goal of the Summit was to give Geneva's banking and financial sector a shot-in-the arm in the wake of the Swiss Government's new regulations effectively ending banking secrecy and the question mark over its future if Swiss economic negotiations with the European Union founder.
Fabio Sofia, President of Sustainable Finance Geneva (SFG), the main organizer of the Summit, told CNN News: "Switzerland is repositioning a bit its financial sector since the end of the banking secrecy [and] the reduction of margins." (video LINK)
Pioneer in UN collaboration
It's not just a financial ploy.
Geneva can claim to have established one of the most humane development initatives and one of first financial collaborations with the UN system, for microfinance, 18 years ago with BlueOrchard.
Today, Switzerland's managers today control more than 1/3 of microfinance assets worldwide, close to $10bn in 80 countries, Sofia noted. Sergio P. Ermotti, CEO of the UBS Group, also highlighted Switzerland's SDG advantage: "Today, 11% of investments on average contribute to SDGs. In Switzerland, it is around 20%."
European first in best practice
Geneva's Lombard Odier bank this year earned a B-Corp certification (LINK) for social and environmental performance, and senior managing partner Patrick Odier was chair of the Summit. He called for an end to the dichotomy where "the common good is the sole responsibility of the public sector and politics, and where the role of companies is reduced to the pursuit of profit for their shareholders."
Geneva established itself last year as the European pioneer of the allied Best for... rating programme with the support of Geneva authorities, launched in January 2018.
Nearly 340 companies completed the online short self-evaluation, and the challenge has involved more than 1000 people, 38 workshops and six conferences. (LINK). "Of the 340 participants, 15 percent of them moved forward by improving their practices and taking the more comprehensive 180 [questions self-assessment]," Best for Geneva reported. Among the results, 46% said they encourage staff to bike or take public transport to work.
Lot to do in social and environmental practices
On the other hand, the report said "there is still a lot of work to be done to integrate the management of societal and environmental practices within companies as strategic elements. For example, despite the availability of sustainable energy infrastructure on the market, only a minority use it today, often due to a lack of awareness or knowledge, rather than for financial reasons." Over 80% said they do not consider their energy consumption or do not have reduction objectives.
The world hub for private finance or trailing on the green walk?
Geneva as an intellectual centre also has problems in positioning itself as a key player in SDG finance, though SFG is now 11 years old. In a closing address to the summit, Aráncha Gonzalez of the UN's International Trade Centre sketched out the promise: "Over a decade ago the United Nations was instrumental in the setting up of the first-ever impact investment fund here in Switzerland. Today Switzerland can [...] become the world hub for private sector development finance." (LINK)
But in terms of walking the talk, the city and region have a long way to go, as Alexandre Epalle of the State of Geneva admitted. "On the Global Green Finance Index Geneva is quite far from the top."
London tops, but Geneva ranks high for quality as specialist
On this scale it is 15th for quality, having dropped out of the top 10 (LINK). FYI, New York was 41st. London came top in most rankings.
Where Geneva did rank high was for quality as a global specialist. But on most areas of competitiveness (e.g. in sustainability, business, human capital or infrastructure) it ranks below Zurich.
Socially responsible investments still only 9% of Swiss investing
Geneva's Mayor Sandrine Salerno, was equally outspoken. Once in charge of the city's pension fund, she noted that it decided in 2013 to give preference to socially responsible investments, but "it is not always easy to find financial products that really correspond".
Though sustainable investments in Switzerland climbed by 83% en 2018, they still represent only 9% of Swiss investments, she added.
National rules partly to blame
Geneva is not solely to blame for this situation. National laws that restrict investment by pension funds in the usually riskier sustainable development projects, and withholding tax and a high stamp duty on asset purchases, make Switzerland less attractive than its rivals for launching SDG-related funds.
Yves Mirabaud, President of the foundation Geneva Financial Center (GFC/Fondation Genève place financière) supported a 2 October petition to abolish the tax and stamp duty for green investments (LINK).
Swiss Finance Minister Ueli Maurer, this year's Swiss President, turned up and addressed the Summit, saying he thinks the State's job is to create optimal conditions for sustainable finance.
In a booklet published by Swiss Sustainable Finance, he notes that the federal authorities offer free climate alignment tests for pension funds and insurance companies, and offers these tests as well to banks and asset managers.
Geneva is holding its breath
But the Geneva Financial Center itself, while noting that Switzerland is "still the world's largest financial centre for cross-border private wealth management, with a 26.6% market share", also says the Geneva financial centre is currently "holding its breath".
Switzerland's relations with the European Union, particularly concerning access to the EU's financial markets, have still to be worked out. Failing agreement, financial institutions will be forced to relocate or reorganize activities, says GFC. "Similarly, the financial centre remains on edge with regard to the risks generated by negative rates, which look to be here to stay," it adds (LINK).
Over 1000 financial institutions in Geneva
SFG says the financial world here includes 104 banks, 895 financial intermediaries and 35,600 employees. International Geneva, for its part, has 40 international organizations headquartered here, 750 NGOs and 43,000 employees (LINK), though I would guess most full-time staff know at least 5 others who live as consultants in the Léman region.
The GFC foundation published its Economic Survey of members for the coming year showing "solid growth" in 2019 for both assets under management and new cash flows (especially from the Middle East)(LINK). But financiers made no predictions about jobs for 2020.
What the banks and bankers earn
The Tribune de Genève cheekily published an examination of the Geneva banking sector in advance of the Summit (paywalled LINK).
Lombard Odier, for example, achieved a return on its own assets of only 11%, largely because it is building a new headquarters, TdG reported. Small private banks, by contrast, have to be content with less than 5%. Pictet records profits of half a billion francs per year, twice as much as green-focused Lombard Odier.
UBP (Union Bancaire Privée, founded in 1969, with CHF134.4 billion of assets under management, pays its staff an average of CHF309K, TdG records. This was above Lombard Odier and Pictet, while Rothschild's average is CHF221K. The average in the Swiss banking sector is CHF115K, the newspaper remarks. Wealth managers can expect more than CHF500K a year.
In case you think, they are not worth it, TdG said the top earners generate more than CHF610K in returns each.
Most financial centres competing on sustainability
"Most of the financial centres are competing to attract investors [...] telling them: here we know to integrate sustainability," Sofia told CNN News, explaining the Building Bridges Summit.
But the Tribune de Genève said the conference "showed that almost everything still has to be done in terms of sustainability" (paywalled LINK).
Panellists reported that investors over-estimated the risks of investing in developing countries and small companies, while under-estimating the potential returns. At the same time, asset managers, for example in pension funds, often have a fiduciary responsibility to go for a higher return from a non-green investment rather than a less profitable SDG-aligned project (LINK).
The problems with moving away from fossil fuels
UBS CEO Sergio Ermotti, for example, was taken to task for the bank's $26bn invested in fossil fuels. His answer: a sudden change towards green investments risks "collatoral damage" to the most vulnerable populations, such as patients in oil-fuelled African hospitals.
Sustainable Finance Geneva, for its part, is working on what can be called a social stock exchange and a development platform.
"These are still at the proof of concept stage," Sofia reported. The idea of a social stock exchange was born a few years ago inside the association, he observed. The reason: "Midsize companies are struggling [...] to find the right capital."
Sustainable Finance Geneva creating a 'pipeline builder'
The aim is to create an investment platform: "There is enough capital if you structure it the right way to attract capital into really interesting projects."
But it needs what finance circles call a "pipeline builder", offering guarantees, seed funding, and similar support for taking funds to projects on the ground. "It could be in the form of a bank or simply facilities," he commented.
Investors must be willing to risk more
Daniel Schriber, head of investments for Geneva's Symbiotics, "the leading market access platform for impact investing" with a Pictet presiding over the board, said: "The appetite for risk among investors must increase."
Symbiotics reports that over the past decade, the company has originated and structured nearly 4000 investment transactions, worth more than $5.3bn, on behalf of more than 450 companies in 83 emerging and frontier markets, all serving a measurable sustainable and inclusive finance objective, purchased by 50 different investment funds and institutional investors"(LINK).
SDGs and finance: summing it up
Assistant UN Secretary-General Aráncha Gonzalez summed it up in her speech:
"While not every goal, target or indicator in Agenda 2030 offers fertile ground for investors, many do. There is money to be made. Not aid. Not charity. Not philanthropy — but investment that can bring a return, could help us reach more than half of the SDGs.
We live in a world where there is liquidity on the one hand, while an unmet need exists on the other. Our challenge is that funds do not flow where they are most needed — at the micro-level.
Developing countries are too risky, investors say. The median of ODA (overseas development assistance)-eligible countries have a sovereign rating of "B+". This means that the borrowers in their countries would have a minimum rating of B-.
This puts them in the bracket of speculative-grade with a very high probability of default that is 12 times higher than that of investment-grade borrowers. So this is far too high for the majority of commercial investors. Much work is needed to improve developing countries' overall rating otherwise borrowers will not benefit.
With blended finance, public governments catalysed more than $140 billion in private capital for SDG-aligned projects in developing countries.
The impact investing revolution has created momentum behind mobilizing private capital for the SDGs. The impact-investing market is now worth $502 billion – growing five times in the last three years alone. If the development community does not get organized, these funds will not flow to developing countries, but developed countries. So we must act now.
New technologies have, for the first time, created the possibility of financial institutions reaching small borrowers in remote areas at a fraction of the cost, and of analysing risk without collateral requirements. This opens the door to lower-cost finance and more accessible terms.
We are at the start of a unique collaboration that can show that 'profit with a purpose' truly exists. And the basis of this has to be the shared achievement of the United Nations Sustainable Development Goals. Because, frankly, it is clear these goals will not be reached if we do not mobilize more capital.
Banks are already [...] starting to provide what they call 'positive incentive financing' to companies, by offering lower interest rates when companies' investments create positive social or environmental value — and they have to prove this via regular [...] reporting."
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Peter Hulm has been a regular communications consultant to ITC on export strategy but he was not involved in the Geneva summit.