ESG in Corporate Finance – Lexology

ESG regulations are becoming increasingly important also in the field of corporate finance, thus influencing a company’s business strategy and operations as well as its financing decisions and structures. During a seminar organized on September 14, 2022 (in cooperation with Latham & Watkins Frankfurt), Christine Hohl and Valérie Schrämli presented the key aspects of Swiss ESG and sustainability law in corporate finance, which are summarized in this article.

Sustainable financing and investments in Switzerland

  • In order to achieve the 2050 net zero objective under the Paris climate agreements of 2015, an annual investment of approx. 12.9 billion francs (2% of GDP) are needed in Switzerland, of which 10.7 billion francs should be provided by traditional bank loans.
  • The Swiss financial sector has a leading role to play in directing capital flows, both through its diversified and competitive banking sector and through its position as world leader in the cross-border private banking market (nearly a quarter of all assets under management worldwide are managed in or outside Switzerland).
  • There are currently approx. CHF 11 billion of green bonds outstanding on the SIX Swiss Exchange and the first green bond of the Swiss Confederation are expected to be issued later this year.
  • For both Swiss financial services providers and companies, integrating ESG considerations into their business and financial strategy is both part of their corporate responsibility and a clear competitive advantage.

Regulatory environment

  • Currently, green bonds are not subject to any separate disclosure or listing rules.
  • In addition to the general extra-financial reporting obligations applicable to public interest companies, a set of rules has been enacted by professional organizations such as the Recommendations of the Swiss Association of Funds and Asset Management, the FINMA circulars 2016/1 and 2016/2 on publications by banks and insurance companies as well as FINMA directive 05/2021 on the prevention and fight against greenwashing.
  • As of January 1, 2023, the guidelines of the Swiss Bankers Association on the integration of ESG preferences and ESG risks in investment advice and portfolio management will come into force.
  • For financial institutions with a cross-border scope, certain reporting exemptions may apply when reporting under an equivalent foreign reporting standard or reporting consolidated by another group entity.

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