Building Bridges: understanding Geneva's secret history, between finance and sustainability

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Building Bridges: understanding Geneva's secret history, between finance and sustainability

Everyone knows Geneva for its “Jet d'Eau" fountain, which attracts both tourists and locals to the shores of its lake. The city is divided in two by the River Rhône, with subtle historical and cultural differences marking both sides.

The left bank is the older part of the city, with its cobbled historic centre and hushed banking district. The thriving right bank, known locally as "International Geneva", is home to the headquarters of many international and non-governmental organisations (NGOs). Today, the aim is to build more bridges between these two districts, in particular between the sustainable development experts in International Geneva and the financial specialists on the left bank.

It is therefore no coincidence that Building Bridges1 is taking place in Geneva. Many bridges have already been erected – so many that Geneva has been described as a "laboratory for sustainable finance".

 

Phase 1: The 1990s hatching phase

This "hatching" phase was first and foremost a test phase. During this period, some bridges were crossed. These were initially of an intellectual nature. On the right bank, international organisations began to think that the private sector should be more widely involved so that sustainable development could be accelerated. On the left bank, some bankers realised that their expertise in management and investment could serve more than just a financial  purpose.

International Geneva then played the role of "incubator". It should be remembered that Geneva is the second headquarters of the United Nations, and is home to the headquarters of some 40 international organisations and several hundred NGOs, representing more than 30,000 jobs. This makes it similar in size to the financial sector in Geneva, which gives an idea of its importance.

International Geneva then played the role of "incubator". It should be remembered that Geneva is the second headquarters of the United Nations, and is home to the headquarters of some 40 international organisations and several hundred NGOs

Probably the best example of success in this hatching stage is the development of microfinance. Until then, institutions providing microloans in developing countries were almost exclusively financed or refinanced by public agencies, particularly UN agencies. Realising that default rates were very low and that risks were spread over a large number of borrowers, some bankers began to think they could play a role in this kind of financing.

Thus, thanks to collaboration between some Geneva-based organisations, such as UNCTAD, (in charge of development and trade issues) and some visionary private bankers, Geneva became a trailblazer by enabling the launch of the very first commercial investment fund dedicated to microfinance, as well as the first fund manager specialised in microfinance: BlueOrchard.

Lombard Odier participated in the launch of this pioneering project, before developing its own impact fund.

Following in BlueOrchard's footsteps, several companies were created, such as responsAbility in 2003 and Symbiotics in 2004. They now dominate the global microfinance market in their segments, thanks to their unique expertise.

Phase 2: The 2000s exploratory phase

The burgeoning of microfinance in Geneva created a favourable environment for the development of many initiatives. In this decade, some specialised players gained significance because they provided the "key" to understanding and implementing sustainable investments. It was no longer just a question of microfinance or impact investing – the influence of which is rather limited – but of selecting large companies or bonds using sustainable criteria.

To invest sustainably, it was no longer enough to just analyse traditional financial criteria. Analysis needed to go further and involve "extra-financial" criteria. Companies specialised in this extra-financial analysis were created: they rated financial companies and/or financial products by assessing their environmental, social and governance performance, also known as "ESG". In Geneva, several pioneering organisations were set up for this purpose. The main big banks also began to seize these challenges and opportunities in the 2000s.

Lombard Odier created its first extra-financial analysis models at the end of the 1990s and has been developing them ever since – initially by establishing ESG analysis models, then the CAR methodology, which rates awareness, action and results.

Lombard Odier created its first extra-financial analysis models at the end of the 1990s and has been developing them ever since – initially by establishing ESG analysis models, then the CAR methodology, which rates awareness, action and results. Lombard Odier now has its own ESG framework, which uses a two-dimensional approach – reviewing extra-financial information to assess a company's business practices and reviewing a company's activities to assess its positioning in relation to key sustainability issues – with a particular focus on materiality.

At the end of the 2000s, some fifteen professionals decided to join forces to launch an association, in order to encourage cooperation between players in the Geneva ecosystem: Sustainable Finance Geneva (SFG). It was created in 2008, with the support of the Geneva Financial Centre, the Canton and the City of Geneva.

 

Phase 3: The 2010s consolidation phase

In this decade, there has been more collaboration between the private sector, public and international organisations, and major initiatives with a global reach have emerged, some of which have their roots in Geneva.

In addition to human rights and peace, a wide range of economic and financial expertise is concentrated in the international organisations represented in Geneva, for example the World Trade Organisation (WTO), UNCTAD, as mentioned above, and the United Nations Environment Programme (UNEP), which has created a specific sector dedicated to sustainable finance in Geneva: the UNEP Finance Initiative (UNEP FI).

UNEP FI is an innovative public-private partnership, which has resulted in particular in the development of six major principles for responsible investment (PRI). Since its launch, the PRIs have been a tremendous success: with more than 1,500 financial companies worldwide, including both asset managers and investors, signing up to them. Lombard Odier signed up in 2007.

In 2015, a new step was taken with the launch of the sustainable development goals (SDG). These SDGs take the form of seventeen targets established by the UN member states, which are set out in the 2030 Agenda. These SDGs were quickly adopted by the private sector. As they provide a common frame of reference, they have enabled companies to establish their SDG priorities and to communicate more easily on these topics. 

In 2015, a new step was taken with the launch of the sustainable development goals (SDG). These SDGs were quickly adopted by the private sector.

Geneva also made its mark here with the founding of the SDG Lab, which aims to contribute to the implementation of these objectives by helping the various actors based in the Geneva region to mobilise their skills and knowledge to develop relevant policies, practices and concrete actions.

 

Phase 4: The 2020s explosion phase?

Last year, Geneva was chosen as the headquarters of a promising organisation: FC4S (Financial Centres for Sustainability). As part of UNEP, FC4S aims to accelerate the growth of sustainable finance by engaging in dialogue and sharing best practices with the world's leading financial centres and stock exchanges. 

To get a better overview of the sustainable finance ecosystem in Geneva, a map showing nearly 150 players was created, thanks to a collaboration between the SDG Lab, the International Institute for Sustainable Development (IISD), the Canton of Geneva and Sustainable Finance Geneva (SFG).

According to this map, nearly 45 institutions are committed exclusively to sustainable finance (pure players), 65 are private players, and 72 are international organisations, foundations or associations.

As we have seen, Geneva manages to be both a pioneer in sustainable niche sectors and a global catalyst. What does the future bring? Sustainable financial products have grown by 83% in 2019 and now exceed CHF 716 billion in Switzerland. These figures illustrate how important sustainable investing has become and will be in the future. At Lombard Odier, we believe that sustainability will be the greatest source of return in the years to come.

 

1The "Building Bridges" event will take place from 7 to 11 October 2019 in Geneva. This week dedicated to sustainable finance will be marked by many events, including an exceptional Summit on Thursday, October 10. 

Important information

This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.

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