In mid-2023, the Swiss Structured Products Association (SSPA) published its guidelines on sustainability transparency.
With this guideline, which comes against a backdrop of increasing regulation around sustainable finance, SSPA intends to set a minimum standard for structured products qualified as sustainable.
This is a key initiative, designed to promote transparency and the integration of sustainability criteria into structured finance products.
After a twelve-month transition period ending in early summer 2024, SSPA members, issuers and distributors are required to comply with these guidelines for all new products.
For the time being, SSPA self-regulation in the area of sustainability is only a free form of self-regulation not recognized as a minimum standard by FINMA in accordance with Art. 7 para. 3 of FINMASA, and is therefore only binding on active SSPA member financial institutions, as well as on institutions wishing to submit to it voluntarily.
Given the lack of consensus on the methodology and factors to be considered in assessing the sustainability of financial investments in Switzerland, the SSPA guideline focuses on defining minimum requirements for issuers of structured products and the provision of related financial services.
Thus, a structured product is classified as sustainable when the structured product’s offering or marketing documentation refers to a sustainable investment approach or uses terms such as “ESG”, “sustainable”, “ecological”, “green”, “social”, “ethical”, “good corporate governance”, “impact”, or any other term referring to ESG or sustainability.
Key requirements for issuers :
Among other things, issuers must adhere to the United Nations Principles for Responsible Investment (UNPRI) or equivalent principles with regard to their own sustainability.
The classification of a structured product as sustainable may be carried out by the issuer of that product by applying its own sustainability framework or that of a third party, provided that this is stated in the documentation relating to the product concerned.
This sustainability framework must be explained in a comprehensible manner and must enable investors to understand how the issuer assesses and determines the sustainability of a structured product.
For the sake of transparency, the sustainability framework applied must be published on the distributor’s issuer website or made available to the investor in electronic form.
Main requirements for the provision of financial services :
Financial service providers using structured products as part of their investment advisory or portfolio management services must comply with the “Guidelines for financial service providers on the integration of ESG preferences and risks and the prevention of greenwashing in investment advice and asset management” published by the Swiss Bankers Association (SBA).
Distributors, on the other hand, may classify structured products as sustainable, independently of the issuer, if these products comply with the distributor’s sustainability framework.
In this case, the distributor must adhere to the UNPRI principles or equivalent, and respect transparency principles similar to those required of the issuers listed above.
Challenges and prospects
This directive is likely to evolve to keep pace with rapidly changing international standards in sustainable finance.
The development of tools for measuring and monitoring ESG performance will be essential to ensure that financial products aligned with these criteria truly meet the expectations of investors and regulators.
Product issuers and distributors not only need to adjust their offering, but also train their teams to meet these new requirements.
The introduction of this directive strengthens investor confidence by offering greater transparency.
Institutional investors, who are increasingly sensitive to ESG criteria, will now find it easier to integrate these products into their portfolios.
The SSPA’s Sustainability Guideline for Structured Products represents an important step towards more responsible and sustainable finance.
Against a backdrop of growing demand for sustainable financial products, this guideline places Switzerland at the forefront of sustainable structured finance.
