Relevance of the topic to SZKB and goals

The investment business can either positively or negatively affect many sustainability issues including the environment, social concerns (especially human rights and child labour) and the economy. Nevertheless, the effective impact does not manifest directly, but downstream at the companies where clients invest their assets. For example, shares and bonds can be used to provide financial resources to companies that are committed to reducing carbon emissions (CO₂) on a lasting basis. Conversely, companies in certain sectors run the risk of using the funds to facilitate economic activities that are associated with human rights violations, child labour or forced labour.

For this reason, «sustainable products and services» and «climate change» are key topics for SZKB in the area of responsible investments.

SZKB has defined the following goals in the area of responsible investing:

• Consideration of controversial and/or environmentally harmful sectors in the investment decision-making process.
  
• By the end of 2025, at least 20% of all asset management mandates should have client preferences that are conscious, focused or effective, and by the end of 2030, this should increase to at least 50%.
  
• The proportion of SZKB investment funds with alignment with client preferences of conscious or focussed will be at least 20% of the total of all SZKB investment funds at the end of 2025, and this proportion will increase to at least 50% by the end of 2030.1
  
• Development of further investment products that foster sustainable behaviour and thus correspond to various ESG preferences.
  
• Development of an engagement policy by 2025.
  
  

 

After the financing business, the investment business is SZKB’s second-largest segment. As part of its asset management and investment advisory activities, SZKB ensures that its clients receive recommendations for investment solutions that are best suited to their individual needs.

Management approach

SZKB ensures that the managed portfolio adheres to the investment policy within the framework of an overall assessment. The SZKB Investment Committee defines the tactical asset allocation each month. A member of the Executive Board chairs the Investment Committee. SZKB is obliged to carefully select the financial instruments to be included in the portfolio managed for the client. This approach is set out in the internal directive «Investment Process in Asset Management and SZKB Fund Management».

Key measures:

• Products and services that take ESG considerations into account
  
• Protection of shareholder voting rights
  
• Sustainable gold
  
• Transparency in the sustainable SZKB investment funds
  
• Raising awareness among employees
  
• Climate change

SZKB’s ethical product line

SZKB successfully implemented its inaugural ethical mandate solution for a client in 2009, and has been providing clients with a variety of financial instruments that take ESG considerations into account since 2010. This is done within the framework of the SZKB Ethical Fund and asset management. This «ethical product line» is based on a combination of a best-in-class approach (positive selection), comprehensive exclusion criteria (negative selection) and traditional financial analysis.

Company		Countries1
Sector-based criteria		Labour law
Alcohol		Nuclear energy
Arctic drilling		Nuclear weapons
Fracking/oil sands		Authoritarian regimes
Genetic engineering Food		Discrimination
Gambling		Euthanasia
Nuclear power		Money laundering
Coal mining		Child labour
Military and weapons		Climate protection
Fur production		Corruption
Pesticides		Human rights
Pornography		Freedom of the press/media
Stem cell research		Arms budget
Tobacco		Death penalty
Animal testing		Freedom of association
		Whaling
Standards-based criteria
Labour rights
Child labour
Human rights
Environmental behaviour
Economic behaviour

 

¹ Country view: If an exclusion criterion is violated, no investment can be made in corresponding government bonds or other government financing.

 

As part of its product reviews and analyses, product management reviews the range of investments that take ESG considerations into account at least once a year and expands the range if necessary.

Exercising shareholder voting rights

Since 2022, voting rights (proxy voting) have been actively exercised for all SZKB Ethical Funds, taking into account ESG criteria based on the proposals of an independent voting rights advisor. The applied voting policy, the voting directives and the specific voting behaviour are published transparently on the SZKB website.

Sustainable gold

As a global hub in the refining and trading of gold, Switzerland has a special role to play in this market. SZKB focusses consistently on gold from fair trade. The Bank is therefore committed to better protection of people and the environment in the gold mining industry. Since 2021, gold bars weighing between one and twenty grams have been sold exclusively with the Fairtrade seal of approval from the Max Havelaar Foundation (Switzerland).

SZKB purchases gold bars weighing 20 grams or more exclusively from Swiss banks. The banks have provided written assurance to SZKB that all bars delivered by them adhere to the relevant rules of the London Bullion Market Association (LBMA) for proper delivery, also known as good delivery.

Transparency in the sustainable
SZKB investment funds

SZKB publishes a transparency report for every sub-fund within the ethical product line, which provides an overview of all the companies in which it has invested and their corresponding SZKB ESG ratings. It also prepares a climate report with information on the fund’s environmental footprint. In this way, SZKB is helping investors to more effectively evaluate the ESG impact of their investments.

Raising awareness among employees

SZKB’s employees form the face of the Bank in regard to its clients. Accordingly, raising the awareness of employees on the topic of «Sustainability in the investment sector» is of crucial importance. In 2023, SZKB conducted a one-day in-person training course for all of its front-line employees. All of the client advisors participated. In addition to a theory block on ESG in the investment sector, the SBA guideline «Guidelines for financial service providers on the inclusion of ESG preferences and ESG risks in investment advice and asset management», which is set to take effect in 2024, was the subject of intense employee training and awareness raising programmes.

Key figures in the investment sector

	2023	2022	Change 2022/2023	2021	2020
Sustainable asset management mandates (number)	122	116	5.2%	106	62
Sustainable asset management mandates (in CHF million)	115.1	98.9	16.4%	117.0	87.1
Share of volume of sustainable asset management mandates of the total asset management mandates	2.7%	2.6%	3.8%	2.8%	2.3%
Sustainable SZKB investment funds (in CHF million)	361.7	318.5	13.6%	273.8	148.0
Share of volume of sustainable SZKB investment funds of the total SZKB investment funds	22.8%	23.8%	-4.2%	21.2%	12.0%

SZKB reviews the climate-relevant data for SZKB Ethical Funds and mandates on a quarterly basis. These portfolios consist solely of individual securities, making it easier to evaluate climate-related data than with collective investments.

SZKB offers ethical products with four different risk characteristics (ratio of equities to fixed-income securities): income, balanced, growth and capital gains. Each type of risk is analysed separately in relation to greenhouse gases, and the findings are published in the specific climate report for that product.

As of the end of December 2023, the aggregated emissions of CO₂ equivalents (CO₂e) of the companies in which investments were made were as follows:

Fund	Total tonnes CO2e	Difference to benchmark index*
SZKB Ethical Fund Income	13,735	–49.4%
SZKB Ethical Fund Balanced	71,267	–48.8%
SZKB Ethical Fund Growth	7,254	–32.5%
Ethical Fund Capital Gain	113,556	3.8%

 

The table indicates that the companies in the SZKB Ethical Fund emit a lower overall amount of CO₂ than those in the benchmark index.

In addition, the emissions intensity (CO₂e emissions in relation to turnover) is assessed. This is important because only considering absolute emissions per company in isolation would unfairly favour smaller companies (with lower absolute emissions).

In terms of emissions intensity (tCO₂e/sales), the following picture emerged at the end of December 2023:

Fund	Emissions intensity	Difference to benchmark index
SZKB Ethical Fund Income	27.88	–67.6%
SZKB Ethical Fund Balanced	23.08	–73.9%
SZKB Ethical Fund Growth	24.34	–73.3%
SZKB Ethical Fund Capital Gain	26.20	–72.2%

 

This demonstrates that the companies in the SZKB Ethical Fund have a significantly lower emissions intensity compared to those in the benchmark index (similar to the earlier definition).

* The benchmark index is made up of the following indices, depending on the risk characteristics:

Index	Ethical Fund Income	Ethical Fund Balanced	Ethical Fund Growth	Ethical Fund Capital Gain
SBI Corporate Total Return	45.4%	33.0%	17.4%
Bloomberg Euro Corporate Bond Index	13.8%	10.0%	5.3%
Markit iBoxx USD Liquid Investment Grade Index	13.8%	10.0%	5.3%
SPI Index	8.0%	14.4%	22.4%	31.7%
MSCI World (ex CH)	17.0%	30.6%	47.6%	67.3%

Assessment of effectiveness

By adhering to the SBA guideline «Guidelines for financial service providers on the inclusion of ESG preferences and ESG risks in investment advice and asset management», in 2023 SZKB established essential conditions for achieving the goals of responsible investment objectives.

As of 2023, we cannot definitively determine the proportion of asset management mandates aligned with conscious, focused or effective client preferences. This is because we have yet to conduct a survey on client sustainability preferences, which is scheduled for 2024. We cannot currently provide information on client assets in SZKB investment funds aligned with conscious and focused client preferences, as the survey on sustainability preferences will not be conducted until 2024.

For 2024, further activities are planned for the objectives «Consideration of controversial and/or environmentally harmful sectors in the investment decision-making process», «Development of further investment products that promote sustainable behaviour and thus correspond to various ESG preference» and «Development of an engagement policy by 2025».

Overall, SZKB considers the measures taken to have been effective.

Further development and next steps

In 2023, SZKB implemented a project to incorporate the SBA guideline «Guidelines for financial service providers on the inclusion of ESG preferences and ESG risks in investment advice and asset management». SZKB will survey the sustainability preferences of new clients starting from 1 January 2024 and of existing clients by no later than 31 December 2024. Corresponding to the chosen preference, an investment recommendation is used for each transaction to ensure that the financial instrument to be purchased aligns with the client’s specified sustainability preference (if already known).

Due to the systematic integration of the topic of sustainability into the investment advisory process, SZKB believes that steady growth can be achieved in the area of sustainable investments. On this basis, SZKB will expand its product range from April 2024 to include a sustainable fund line and a sustainable asset management mandate with the SZKB ESG rating «conscious».

Training employees and educating clients about sustainability in the investment sector is an integral component of the «responsible investment» strategy and is ensured through the ongoing improvement of advisory tools and product training.

Starting from 1 January 2024, SZKB will assign an ESG rating to all securities. The internal document «ESG Policy» forms the basis for this. This document will have the status of an internal directive and will govern matters including the SZKB ESG rating process.

SZKB has also planned the following actions for 2024 and beyond:

• Starting from 2024, SZKB will only recommend investments that exclude extreme ESG risks (such as cluster munitions and nuclear weapons).
  
• Daily review of client portfolios for discrepancies related to their chosen ESG preference and the investment instruments included therein. The client advisors discuss any discrepancies with the clients.
  
• Development of an engagement policy.