Switzerland at the heart of SDG financialization?

Students on the campus of the SOS Hermann Gmeiner International College in Tema, Ghana.
Political article
According to the UN, there's a funding gap of 2,500 billion $ per year to achieve the SDGs by 2030. Raising this money will require private sector involvement – this is the current political consensus. Switzerland's financial centre positions itself.

A week-long meeting took place in Geneva in October, attended by high-ranking representatives of the Swiss finance industry, pension funds, asset management companies, multinational enterprises domiciled in Switzerland, the Swiss Government and the UN. The purpose of the meeting, held under the fine-sounding theme Building Bridges, was to examine the wish of some players to position the Swiss financial centre at the heart of "sustainable finance".

No one disputes that the world is not on track to achieve the 17 Sustainable Development Goals (SDGs) – which encompass the elimination of global poverty, reducing inequality, as well as combating the global loss of biodiversity – and that additional billions in funding are urgently needed to achieve the goals of the 2030 Agenda. Equally beyond doubt is that banks, pension funds and asset managers located in Switzerland manage incredible sums of money and make an enormous impact on global financial flows through their investments. This raises the question of whether these financial flows should not be so steered as to contribute to the attainment of the SDGs. What may sound logical and expedient in theory however, is extremely complex when it comes to practical implementation. The following idea was heard repeatedly during the Building Bridges week in Geneva: "We manage enormous amounts of money and we are keen to invest in attaining the SDGs, but where are the bankable projects?" After all, the financial sector still prefers low risk and (potentially high) profitability.

There has in fact been a spike in demand for sustainable financial vehicles that are expected to combine profitability with positive social and/or environmental impacts. This new kind of financial instrument merits critical examination, however. Philip Krueger, Professor at the Geneva Finance Research Institute, stressed that there was an enormous risk of green washing and rainbow washing, since almost everyone currently embraces sustainability even in the absence of any globally recognized standards that define sustainable investment. UBS and CS, for example, today grandiosely market themselves as sustainable, but their actions tell another story. Between 2016 and 2018, UBS invested some 26 billion US dollars in companies trading in oil, gas and coal, while Credit Suisse participated to the tune of 845 million US dollars in firms that profit directly from forest clearance and burning in the Amazon region, through credits and loans, among other ways.

If we are to reduce poverty, inequality and the destruction of natural resources within the meaning of the SDGs, there must be a special focus on the poorest populations ("Leave no one behind"), as well as on conditions for sustainable production and consumption. There is need for strong civil societies, good and universally accessible education and health systems, decent and properly paid long-term employment, as well as climate and environment-friendly production and consumption patterns. All this calls for a world economy strongly oriented towards the common good and the long-term, which is hardly compatible with the notions of liquidity and profitability as currently espoused by the world of finance. In Geneva, UBS CEO Sergio Ermotti could not have been clearer. He stated that financial returns were still the main criterion for investment decisions and that UBS was critical of divestment strategies (e.g. phasing out of coal-fired power plants). For her part, State Secretary for International Finance Daniela Stoffel stated that Switzerland does not plan to regulate banks into greater sustainability, but will continue to trust in their expertise and rely on close dialogue.

Banks as development players?

Although only a very small number of private players possess sufficient social or environmental know-how, the Swiss financial sector is trying to reposition itself as an efficient development player. In so doing it wants the support of the Swiss Government, which would be expected to create the most business-friendly environment possible and minimize risk to investors by expanding the number of "blended finance" instruments in development cooperation. This is borne out by a six-page open letter sent by 50 representatives of the Swiss private and financial sector to the Federal Council, Parliament and to the financial market supervisory authority FINMA.

What does this mean in real terms? In developing countries, things like infrastructure, energy, transport, agriculture as well as important public services such as certain aspects of the healthcare or education systems are to be increasingly taken over by profit-driven companies and packaged and traded on international financial markets in the form of complex financial products. In this way, the countries concerned are becoming increasingly integrated into globalized financial markets over which they have no control. The financialization of development continues its forward march. This is in fundamental contradiction to the SDG principle of leaving no one behind, as it is precisely the poorest who cannot pay for access to education and healthcare. On the other hand, public access for all is not profitable for firms and investors.

There were also critical voices at the Building Bridges summit, for example that of Peter Bakker, CEO of the World Business Council for Sustainable Development, whose view is that the prevailing preoccupation with profit must give way to the pursuit of meaningfulness if we are to halt climate change, the destruction of the biodiversity and growing inequality. To that end, sustainability would have to take a central place in the financial industry. Achieving such a profound paradigm shift would of course call for clear and universally recognized yardsticks against which to measure the social and environmental impacts of corporate activities and tax practices. An entirely new form of transparency is also needed for entities such as banks, pension funds, reinsurers and portfolio managers, whereby they would be required to disclose the criteria guiding their trade and investment as well as the social and environmental implications of their investments. Ultimately, the question is whether companies and banks (as well as investors) are prepared to prioritize meaningfulness and sustainability over profit and, among other things, also pay higher taxes (e.g. financial transaction taxes) and thereby help reduce existing inequalities and provide the funds required to realize the SDGs. Another pivotal question is whether the financial sector of its own volition will be able to move in this direction or whether government guidelines and regulations will still be needed to bring this about.

Even at the end of the Building Bridges week, the question remains as to whether the Swiss financial centre is truly concerned with funding the SDGs and effecting the paradigm shift that this would entail – from short-term pursuit of profit to long-term sustainable development – or is instead trying to build a bridge for itself into the future and open up new profit streams by even further embedding poor countries in the international financial system.

What does financialization mean?

The Gabler Banklexikon defines financialization as the actual or perceived trend in a (capitalist) system towards ever greater importance and dominance of the financial sector with respect to other parts of the system.

Financialization arises from the trend displayed by capitalist systems towards converting all goods, merchandise, services or other tradable assets into financial instruments or derivatives thereof, in order to facilitate profitable trade in them.