Nearly half of Swiss banks do not believe the sector can effectively contribute to fighting climate change at present, according to an EY survey of 100 lenders.
This sentiment reflects the debate about the role and responsibilities of the financial market in driving the transition to a low-carbon economy, the auditing company said in its Jan. 9 report.
The survey comes as Credit Suisse Group AG and the bank's brand ambassador, tennis star Roger Federer, face criticism by climate activists. The environmentalists have been calling out Credit Suisse on its continued support for coal investments, while Federer angered activists with comments he made in a newspaper interview. The tennis player said he could not advocate for a reduction in air traffic given that he is frequently flying himself.
While 55% of the lenders were positive about their role in dealing with climate change, 45% were skeptical of what can be achieved currently. More than three-quarters of respondent banks, 76%, said their clients are interested in sustainable investments but were not willing to sacrifice returns. Only 9% of the banks have integrated environmental, social and governance, or ESG, criteria in their reporting to clients. Just over 50% plan to do that in the future, while 40% have no such plans.
As many as 30% of the banks said sustainability is a mandatory part of their investment advisory process. This percentage is high, according to EY, as the full integration of ESG criteria is complex and many of the metrics are still controversial.
Almost the same proportion of banks, 28%, said they will not include such criteria as a mandatory part of their advisory process. The remaining 42% plan to include ESG in their advisory process.
A majority of the banks, 81%, said sustainable investment instruments will remain relevant in the medium term and 70% said they plan to boost their offering of such instruments in the future. But 51% said more regulatory requirements are necessary to ensure that the full potential of sustainable instruments is used to protect the climate.
Another theme the survey highlighted was the continued low interest rate environment in Europe. Most Swiss banks expect rates to remain at rock-bottom levels in the foreseeable future, which has hurt sentiment, especially among retail banks in Switzerland, EY said.
The proportion of banks expecting a decline in their operating profit over the next six to 12 months has increased to 33% in 2019 from 22% in 2018. The share of institutions expecting a decline in operating profit over the next one to three years has also surged — to 31% in 2019 from 16% in 2018. The long-term outlook was worse with the share of banks projecting an operating profit decline in the 2019 survey rising to 27% from 13% in 2018.
The majority of banks said they would consider passing on negative interest rates to retail clients. As most banks are still trying to avoid charging smaller retail clients, wealthier private banking clients will be most affected by the negative deposit rates.
Looking to 2020, 44% of the polled banks said they will focus on innovation and increasing their profitability, while 39% will focus on cost reduction and efficiency improvements. The remaining 17% named risk, compliance and regulation as a key theme in the new year.
For the third year in a row, cybersecurity was cited as the area requiring the most attention over the next six to 12 months, according to the survey.