The three leading Swiss private banks provided figures highlighting some challenges in their operations. How do UBS, Credit Suisse and Julius Baer compare on ESG?
The recent second quarter results of the three major Swiss wealth management banks are sobering. UBS’s operating profit was flat year-on-year, Julius Baer reported a 6% drop in operating profit, while at Credit Suisse, net profit fell by almost a third.
At a time when central banks were ending easy money policies, low-hanging fruit is now a thing of the past for financial institutions.
Alternative measures that can be used to describe the health of prime private banks are also food for thought. For example, between 2020 and last year, CS employee turnover nearly doubled to 12.6%. At UBS, litigation provisions increased by more than $660 million during this period. And at Julius Baer, the proportion of women in senior management increased only slightly, from 27.9 to 28.5 percent.
Admittedly, these figures are not available in the current quarterly reports but are taken from the respective annual reports of the three institutions. This was done by the same team of analysts at Barclays that recommended the sale of shares in Credit Suisse and UBS shortly before the publication of quarterly reports. For the first time, they included an “ESG snapshot”, resulting in a score for each company in the areas of environment, society and good governance (ESG).
Although this is uncharted territory, in the transformation to a more climate-friendly economy, it is possible that this will become the norm for banking research in the future.
This raises the question of whether the most operationally successful bank is also the most sustainable. Barclays assigns a maximum value of five points to each ESG reporting ‘letter’, where multiple and consistent third-party assessment benchmarks have been used. Julius Baer scored three points in each of the three areas of environment, society and governance. Credit Suisse scored four points for environment, three points for societal issues and just two points for governance in light of its recent debacles. Finally, UBS obtains the best score with four points each on environmental and social issues and three points on governance.
Although the three banks have made various sustainability pledges, the pace of achieving these goals varies. UBS and Credit Suisse, for example, want to reach “net zero” for their own CO2 emissions in 2025, while Julius Baer sets a target for 2030.
Question marks over customer money
While Barclays analysts believe such goals are also achievable for Julius Baer, they see the private bank’s ability to assess the origin of its clients’ funds on ESG aspects as a challenge. This is also a question for UBS and Credit Suisse. In addition, the report also criticizes Julius Baer on the need to make progress in staff diversity and to minimize legal risks in private banking.
At Credit Suisse, ESG expectations relate to risk management and corporate culture, while at UBS, analysts are concerned about the risk of a new tax dispute.
Tested by the ECB
Viewing ESG simply as a nice complement to “hard facts” would be a mistake. All signs indicate that in the future, the sustainability rating of banks will become just as important as their creditworthiness, capital strength and market value. A climate stress test conducted by the European Central Bank (ECB) last July among 41 banks in the euro zone suggested that this was the wave of the future.
Although the test has not yet had any consequences for banks, in Switzerland the industry does not want to face a new wave of regulation. Seeking to get ahead of the problem, in June they created their own rules against fraudulent labeling of ESG financial products and with targets for mortgage business.
cast a wary eye
Outside Switzerland, banks have also become aware of the need to be proactive in terms of sustainable development and promises are made quickly. But that’s easier said than done and implementing policies is complicated and expensive, all the more so under the watchful eye of environmental activists and major shareholders.
A recent industry navel-watching exercise, also backed by Swiss institutions, concluded that banks must dramatically accelerate their climate efforts if global temperature rise is to be kept within the targets of the EU. Paris Agreement.