Regulation will be at the forefront of the conversation on how to do ESG correctly, and a country uniquely poised to learn from the growing pains of existing regulatory frameworks is Switzerland.
Unmoored from existing EU frameworks and home to one of the world’s largest financial hubs, Switzerland can implement regulatory frameworks that minimise drawbacks and maximise positive outcomes.
An impact-based approach that looks beyond company disclosure and leverages data and technology is a much better fit for Switzerland and is a logical next step if it wishes to continue its pioneering role in ESG – and to benefit economy, people and planet.
Frameworks
Developed EU regulatory frameworks like the taxonomy on sustainable activities, Sustainable Finance Disclosure Regulation and principle adverse impacts, are certainly a step in the right direction but have a number of shortcomings.
Standardised reporting might mean including topics and indicators that are not relevant to some industries, and some frameworks currently only apply to larger companies. Self-reported data also leaves open the possibility for masked risk and greenwashing.
So how can Switzerland – the birthplace of sustainable funds and impact investing – do better?
Switzerland has the opportunity to maximise the positive outcomes and minimise the adverse effects via an impact-based regulatory approach. The key benefits of an impact-based approach that differ from existing regulatory frameworks are:
- Disclosure of environmental impact and diversity initiatives with a particular emphasis on emissions, water consumption, and waste.
- Coverage of small and private companies to avoid transfer of non-sustainable assets from public companies to private companies.
- Ensure timely data to enable effective decision-making.
- An intentional focus on ESG and business conduct risks, with a foundation in the do-no-harm principle and comprehensively aligned with international key standards on ESG.
In order to achieve these benefits, impact-based reporting relies on two main methodological points:
- Limiting company self-reporting to emission and energy data and achievement of diversity goals, instead relying on outside-in data regarding adverse impacts to avoid greenwashing for all aspects of ESG.
- Leveraging of technology to ensure timeliness, coverage and consistency of data.
An impact-based approach comprising these key tenets is not only flexible and nimble, it will also measure the real impacts of companies on people and planet, while protecting the companies from financial, legal and reputational risks.
