Abstract
Switzerland plays a key role in impact investing with strong involvement of specialized asset managers. Currently we see microfinance being the largest field, due to its early emergence on the market, but other topics (i.e. energy) are rapidly gaining importance. In 2015, experts from Swiss-based institutions active in this area, defined a new subcategory of impact investing: “investments for development”. A market study was carried out to benchmark the current status of this segment in Switzerland and to outline the challenges and opportunities for actors in this segment. Results show that institutions in Switzerland represent one third of the global market of investments for development, with 10 billion USD assets under management. The volume is growing fast with a compound annual growth rate of 18.4% in 2015 and market players expecting similar growth for coming years. The regional spread of the investments over 96 countries shows that these types of investments can be widely applied. Market target returns and the clear intention to improve social, environmental and/or economic conditions within developing economies make investments for development attractive for investors.
The results of this survey were also used by the authors for an article published in the book “Sustainable Financial Innovations” (Meyer and Hess 2018).
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Notes
- 1.
At the conference in Sendai (March, 2015) the first framework for disaster risk reduction was adopted, in Addis Abeba (July, 2015) the international community finalised a framework on “Financing for Development”, New York saw the adoption of the ambitious Sustainable Development Goals and the Agenda 2030 (September, 2015) and lastly, in Paris the decision to limit Climate Change to 1.5°–2° was finally agreed on by all nations (December 2015).
- 2.
The UNEP Inquiry into the Design of a sustainable Financial System, established in 2014 by the United Nations Environmental Programme, looks into how the financial system can contribute to a green and sustainable economy.
- 3.
The survey was outlined by the SSF workgroup “Investments for Development”, and refined by Kelly Hess (SSF) and three workgroup: Frédéric Berney (BlueOrchard), Julia Meyer (University of Zurich’s Center for Microfinance) and Marina Parashkevova (Symbiotics). Data collection was organized by Symbiotics. Survey guidelines were partially based on the CGAP MIV guidelines and can be found at: http://www.sustainablefinance.ch/upload/cms/user/20151019_SSF_Inv_for_Dev_Survey_Guidelines.pdf
- 4.
The full data and methodology can be found in the Market Study at: http://www.sustainablefinance.ch/en/swiss-investments-for-a-better-world-_content---1--3043--1962.html
- 5.
The results of this work are also currently under review for publication within a special issue of the Journal of Sustainable Finance and Investment.
- 6.
SSF is an association founded in 2014 with the aim to strengthen the position of Switzerland in the global marketplace for sustainable finance by informing, educating and catalysing growth. SSF has representation in Zurich, Geneva and Lugano, and unites over 90 members and network partners from financial service providers, investors, universities and business schools, public sector entities and other interested organisations. More information can be found at www.sustainablefinance.ch
- 7.
The classification published on the website of the World Bank as of 10.1. 2016 is used to distinguish low-income, (lower and upper) middle-income and high-income countries.
- 8.
Figures are collected for December 2014, except for the total AuM, where respondents also indicate the level for September 2015.
- 9.
All currencies are converted to USD using the exchange rate for December 2014 and September 2015 respectively, source: www.oanda.com
- 10.
Assets under advice are not included under total assets under management (AuM) for this study.
- 11.
Indirectly invested assets imply a risk of double-counting. However, due to the structure of the respondents, with less than a quarter being asset owners, it is unlikely that a large share of third-party managed assets are also represented within the direct investments of the banks and asset managers. Furthermore, in case indirectly managed assets flow through non-Swiss intermediaries, double-counting is not an issue. It is therefore fair to assume that double-counting is negligible and total investments for development in 2014 amount to USD8.68 billion in Switzerland.
- 12.
Two respondents did not provide this information.
- 13.
This number is based on estimations by responsAbility Investments and GIIN Impact Base.
- 14.
Microfinance was not defined in detail for the purpose of the survey. The distinction between financial services to micro-customers as opposed to SMEs (small and medium enterprises) lacks clarity and probably both types of services are captured in this category.
- 15.
This result is driven by the above-mentioned fact that Switzerland is one of the pioneer markets for microfinance. Its leading position in this industry clearly affects the distribution of funds between private debt and private equity, considering that microfinance largely involves investments in private debt.
- 16.
Provisioning is the accounting process used when an expense is recognised to reflect critical investments that are expected to (partially) fail. As soon as the failure of an investment is certain, a write-off occurs, where an investment (earning asset) is removed from the books and its book value is written down to zero (Fitch 2000).
- 17.
Some of the seven respondents did not provide the regional allocation for their whole portfolio in investments for development.
- 18.
Examples of exposures in high-income countries would also include investments in larger institutions with activities in different countries being headquartered in a high-income country.
- 19.
- 20.
- 21.
IRIS metrics are managed by the Global Impact Investing Network (GIIN) with the intent to measure social, environmental and financial performance (https://iris.thegiin.org/metrics).
- 22.
More information at the product level is available in the report published by Swiss Sustainable Finance and CMF (2016) and the article submitted to the Journal of Sustainable Finance and Investment.
- 23.
LOLC plc. 2016 (http://www.lolc.com/news.php?id=225).
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Acknowledgements
We thank the Swiss Sustainable Finance workgroup “Investments for Development” and mainly Frédéric Berney and Sabine Döbeli for their valuable support and meaningful inputs. We also thank Annette Krauss for important comments on the first draft of the study.
Disclaimer
The content of this paper is meant for research purposes, with an aim to broaden and deepen the understanding of Investments for Development in Switzerland. On a few occasions, this paper refers to specific collective investment schemes. Such references are made for research purposes only and are not intended as a solicitation or recommendation to buy or sell any specific investment instruments. The case studies in this document have been issued by SSF in cooperation with BlueOrchard Finance SA, Obviam, responsAbility investments AG, Symbiotics SA and UBS AG (the “Parties”). The Parties have taken all reasonable measures to ensure that the information and data presented in this document are complete, accurate and current. The Parties make no express or implied warranty regarding such information or data, and hereby expressly disclaim all legal liability and responsibility towards persons or entities who use or consult this document.
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Meyer, J., Hess, K. (2018). Investments for Development in Switzerland: A Sub-type of Impact Investing with Strong Growth Dynamics. In: Wendt, K. (eds) Positive Impact Investing. Sustainable Finance. Springer, Cham. https://doi.org/10.1007/978-3-319-10118-7_9
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