Swiss Investors Drive Expansion of Sustainable Investments in Private Markets
Sustainable investments in private equity, infrastructure, and mortgages surge in Switzerland, outperforming other asset classes, according to the Sustainable Market Study 2023 by Swiss Sustainable Finance (SSF).
Swiss asset managers and asset owners have significantly increased their investments in sustainable private markets, surpassing other asset classes, reveals the Sustainable Market Study 2023 published by Swiss Sustainable Finance (SSF). Last year witnessed a rise in sustainable investments in private equity, infrastructure, and mortgages, reflecting a growing trend toward sustainability in non-traditional asset classes.
The study highlights that sustainable investments in private equity reached CHF 77 billion (€78.6 billion) last year, up from CHF 74 billion in 2021, while sustainable investments in infrastructure rose from CHF 24 billion to CHF 35 billion. Notably, sustainable investments through mortgages saw a substantial leap from CHF 2 billion to CHF 14 billion in 2022.
Sabine Döbeli, CEO of SSF, emphasizes that while most asset classes experienced declines due to overall market performance, private equity, infrastructure, and mortgages saw significant growth. This trend signifies a shift toward sustainability-related investments in non-traditional asset classes, reflecting the increasing importance of environmental, social, and governance (ESG) considerations in investment decisions.
Although equities, corporate bonds, sovereign bonds, and real estate remain the top asset classes for sustainable investing in Switzerland, their volumes have declined compared to the previous year. The latest data indicates that sustainability-related investments are increasingly applied across various asset classes, with equity, corporate bonds, and sovereign bonds accounting for approximately three-quarters of total volumes.
Asset owners predominantly allocate green investments to real estate (28%), corporate bonds (27%), and sovereign bonds (25%). The study also reveals that 86% of asset owners have a formal ESG policy in place for real estate investments.
In 2022, the overall volume of sustainable investments in Switzerland experienced a 19% decline to CHF 1.61 trillion, including funds, mandates, and self-managed assets of asset owners, down from CHF 1.98 trillion in 2021. This reduction can be attributed to negative market performance, stricter definitions of sustainability-related investments, and changes in methodology affecting reported volumes for asset owners' stewardship approaches.
Institutional investors remain at the forefront of sustainable investment approaches, with CHF 1.17 billion allocated according to ESG standards. Approximately 52% of the Swiss funds market is comprised of funds investing based on ESG criteria.
Thematic investment approaches (86%) and impact investing (80%) demonstrated strong growth among Swiss investors in 2022, while exclusion (-6%), ESG integration (-22%), and ESG engagement (-14%) experienced declines.
For the first time, the study introduces the concept of climate alignment, referring to the reduction of greenhouse gas emissions in portfolios in line with global climate goals. Approximately CHF 375 billion, nearly a quarter of all sustainability-related investments in Switzerland, align with the goal of achieving a net-zero carbon footprint by 2050.
The report categorizes investments into five groups based on the European Sustainable Investment Forum's Classification Scheme for Sustainable Investments. These categories include exclusion-focused investments, basic ESG considerations, advanced ESG analysis and integration, impact-aligned investments, and impact-generating investments actively contributing to positive impact.
Exclusion-focused strategies account for 13% of the overall volume of green allocations, with CHF 216 billion invested. Basic ESG approaches are followed by asset owners with CHF 246 billion and asset managers with CHF 584 billion. Advanced ESG investments make up 14% (CHF 233 billion), while impact-aligned investments represent 12% (CHF 195 billion). Impact-generating strategies comprise the smallest share, with CHF 136 billion in sustainable investments.
The Sustainable Market Study 2023 sheds light on the increasing importance of sustainable investments in private markets in Switzerland. As investors prioritize ESG considerations, these findings demonstrate the country's commitment to fostering a more sustainable financial ecosystem.