After years of rapid growth, sustainable funds are currently facing headwinds. Not so in Switzerland, where retail banks in particular are focusing on green products. However, the topic of "biodiversity" is hardly being addressed. This is shown by a new study by Lucerne University of Applied Sciences and Arts.
A quarter of all Swiss mutual funds are considered "sustainable" in Switzerland. Sustainable funds are continuing to grow, but the momentum is clearly slowing. Less fresh capital is flowing into the current 2,325 sustainability funds. However, sustainable funds are multifaceted and are becoming increasingly diverse. The latest example is investments that aim to contribute to the protection of biodiversity. An ambitious goal, as the latest edition of the Sustainable Investments Study by Lucerne University of Applied Sciences and Arts (HSLU) shows.
Sustainable funds facing a headwind for the first time in years
In the past twelve months, the range of sustainable funds on offer in Switzerland has grown by 161 funds (+7%). With 2,325 funds, customers can now choose from three times as many products as in 2020. However, the market is facing a headwind: investors no longer generally prefer sustainable funds to conventional funds when making new investments. Market saturation trends could be one reason for this - or performance concerns: for many years, sustainable strategies yielded good returns, but this has changed since 2022 (Figure 1). Sustainable funds are often less exposed to fossil fuels and military equipment, which can be an advantage or disadvantage depending on the market situation and investor preference.
Swiss retail banks focus on green products
The study shows that Swiss retail banks focus disproportionately strongly on sustainable investments (Figure 2). They offer their customers 490 of their own retail funds, more than half of which are clearly positioned as sustainable. In contrast to the market as a whole (12 percent), 87 percent of newly invested funds at Swiss retail banks flow into sustainable investments. "This development is an indication that sustainable funds currently enjoy a very high priority in customer advice and sales strategy at Swiss retail banks," explains co-author of the study Manfred Stüttgen. "The implementation of the Swiss Bankers Association’s new self-regulation on sustainable investments since the beginning of 2024 is likely to have given this development a significant boost," Stüttgen continues.
Biodiversity and natural capital: financial risk or investment opportunity ’
Biodiversity is a new topic for sustainable funds. Half of all sustainability funds in Switzerland check companies to see whether they have a negative impact on areas with biodiversity worthy of protection. Only 21 percent of conventional funds do this (Figure 3). Investors increasingly want to be compensated for taking on biodiversity risks. Specific information on such risks is therefore desirable. Companies from sectors with intensive land use, such as the food industry, agriculture and forestry, fishing or raw materials extraction, are particularly affected by biodiversity damage.
The challenge for asset managers and investors lies in measuring biodiversity risks, the availability of suitable data and its interpretation. "To date, there are no established measurement criteria for the loss of biodiversity by companies," says Brian Mattmann, co-author of the study. "Biodiversity data and the underlying models are extremely complex, which makes their use in financial investments a challenge," says the HSLU lecturer.
A niche segment of around four percent of the 2,235 sustainable funds selects its investments with a view to the future opportunities surrounding the topic of "biodiversity". The focus is on investments in companies with innovative products and solutions in the areas of circular economy, clean water supply, waste and plastic avoidance, sustainable forestry and infrastructure. Of the total of 257 providers of sustainable funds, however, only a minority have tapped into this segment to date (see various provider rankings).
IFZ Sustainable Investments Study 2024
The annual IFZ Sustainable Investments Study published by Lucerne University of Applied Sciences and Arts examines sustainable investment funds with a public distribution license in Switzerland. This year’s focus is specifically on sustainable funds and biodiversity. The results of the study will be presented at the Sustainable Investments Day, which will take place in Zurich on November 7, 2024.
We will also be presenting the study online at a webinar on November 21, 2024: Registration
The 304-page "IFZ Sustainable Investments Study 2024: Sustainable Funds and Biodiversity" can be ordered as a booklet at ifz@hslu.ch for CHF 190.
