GSS+ bonds: how does Switzerland measure up?
Green, social, sustainability and sustainability-linked (GSS+) bonds are a vital catalyst for the sustainable development of the State, the economy and society. Their importance has grown globally since 2015, but where does Switzerland stand in this regard, and what more can it do to promote GSS+ bonds? The Swiss Bankers Association (SBA) has published a discussion paper that attempts to answer these questions.
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GSS+ bonds are classic interest-bearing debt securities issued by companies in the real economy or financial sector, public-sector entities or supranational organisations to finance specific sustainable projects or support their sustainability targets.
GSS+ bond issuance has increased rapidly since 2015, in part thanks to the industry’s own efforts to establish principles and standards (for example via the International Capital Market Association). The Paris Agreement, which gives the financial sector a key role to play in fighting climate change, has probably contributed as well. However, international turmoil caused a slump in issuance in 2022, and various analysts predict slowing growth in 2024.
The outstanding volume of GSS+ bonds at the end of 2023 was CHF 3.36 trillion. Europe is the leading region of the world when it comes to issuing sustainable bonds. In terms of volume, Germany and France are the clear leaders on the continent, but the market share of GSS+ bonds is highest in the Netherlands, Norway and Sweden. At the global level, Hong Kong is out in front with a market share of almost 50%, although its issued volume is small compared with the major industrialised nations.
In Switzerland, the growth of GSS+ bonds only began in 2019, around four years after the rest of the world. This has been followed by fresh highs year after year ever since. GSS+ bonds worth around CHF 8.5 billion were issued in 2023. They thus make up about 10% of the market here too. This is an encouraging trend, showing that Switzerland has more or less caught up with the leading GSS+ bond centres in just a few years. Unlike other countries, the Swiss GSS+ bond market held firm against the global slump seen in 2022.
GSS+ bonds are just one type of instrument among many for financing sustainable development, so their market share does not give a direct indication of the Swiss capital market’s sustainability. Nevertheless, it could make sense to keep promoting them – all the more so as demand for sustainable financial investments remains especially high in Switzerland. Various approaches are conceivable. In particular, companies with capital market viability could harness synergies with the binding rules on climate disclosures that came into force in January 2024 to reduce the workload involved in setting up and reporting on GSS+ bonds. Cantonal and city governments should also be made more aware of GSS+ bonds, since they are ones with suitable and above all sufficiently large projects that could be financed by them.
Given the Federal Council’s aim of turning the Swiss financial centre into a leading global hub for sustainable finance, it would generally make sense to consolidate and ideally expand this market position.
You can find more information in the discussion paper “GSS+ bonds: The Swiss market for sustainable bonds in an international comparison”.