Credit Suisse’s sustainability experts face uncertain future after shotgun wedding
What will UBS’s post-merger sustainable finance strategy look like?
Listening to the presentations from UBS’s senior executives on the fevered evening of March 19 – as the bank was unveiling its hastily arranged marriage with Credit Suisse – you would have been forgiven for concluding that sustainability was not the focus of the day.
That doesn’t mean sustainable finance is not high on UBS’s strategic agenda. After all, it has set itself a $400 billion target of assets in sustainable investments by 2025. According to its latest sustainability report, the bank had reached $268 billion of invested assets towards that goal at the end of 2022, up from $251 billion in 2021.
UBS has also showed its willingness to deliver ESG solutions to its global wealth-management clients, with $10.1 billion of United Nations sustainable development goal-related impact commitments and invested assets.
In 2022, the bank facilitated 77 green, social and sustainability or sustainability-linked bond (GSSS) deals last year, worth $48 billion. It was a sustainability structuring adviser for the Republic of the Philippines’ inaugural sustainability bond.
But among the many questions left unanswered after the rescue takeover is how much of a natural fit Credit Suisse’s sustainable finance capabilities are with the overall sustainability strategy of UBS.
The demise of Credit Suisse may create opportunities for others to expand their presence in blue finance and related areas
Like many in its peer group, Credit Suisse had been focusing its efforts on broadening sustainability-themed client solutions in its wealth and asset management business lines, while dealing with volatile market conditions. By 2022, it had built up a relatively big sustainable and impact investing shop.
In its last sustainability report, the group reported SFr132 billion in assets under management (AUM) classified according to its sustainable investing framework (SIF), down 12% from SFr150 billion in 2021.
But the group had also brought new investment solutions to clients, including investment funds and index-tracking instruments screened using the SIF and thematically aligned to either ‘people-focused’ or ‘planet-focused’ sustainable development goals, as well as a new healthcare-themed alternatives offering.
Its structured products business included a range of climate indices with Morningstar and MSCI that seek alignment with the Paris Agreement, and structured note issuances with green use of proceeds.
It also launched the Holt Sustainability Suite in 2022 – Holt is a valuation methodology set up in 1985 and acquired by CSFB in 2002. The Sustainability Suite combines financial and ESG metrics to help professional and institutional investors assess companies’ business models.
At first glance, there is no reason why these product lines wouldn’t fit well with UBS. The Credit Suisse acquisition adds even more heft to UBS’s wealth and asset management business, which will have a combined $1.5 trillion of AUM in asset management and $3.4 trillion in global wealth management. Capitalizing on Credit Suisse’s product line to drive ESG awareness among wealthy individuals and institutional clients would be expected to play an important role.
But Credit Suisse’s biggest sustainability strengths are arguably within its investment bank: the unit that UBS has indicated it will be picking over for select morsels to help the strategic goals of its global banking division, but “managing down” the rest.
The investment bank had been growing its sustainable finance credentials. In 2020, it set itself a sustainable finance commitment of SFr300 billion by 2030 and claimed that SFr91.6 billion in aggregate transactions executed between 2020 and 2022 qualified for inclusion towards that overall commitment.
Among the transactions, it was those that were related to biodiversity and conservation finance that stood out. For example, the bank was celebrated for its role as sole structurer and arranger of the marine conservation-linked bond issued for Belize under The Nature Conservancy’s (TNC) Blue Bonds for Ocean Conservation programme in 2022.
Credit Suisse was also sole conservation bond structurer and a joint bookrunner on the World Bank’s Wildlife Conservation Bond (WCB) in South Africa. It has also structured a $146.5 million debt conversion transaction for Barbados alongside CIBC FirstCaribbean in September.
Is there a willingness and appetite at UBS to absorb this capacity of structuring niche sustainable transactions, be it conservation bonds or debt-for-nature swaps? Or will at least some of these capabilities simply drift away?
For the moment, we just don’t know. When asked by Euromoney whether Credit Suisse’s approach to sustainable finance was compatible with or complementary to UBS’s sustainable finance strategy – or if there were any specific sustainable finance products, teams or expertise within Credit Suisse that UBS was particularly interested in – the bank declined to comment. It also wouldn’t be drawn on the specific future for capabilities around blue-bond issuance and conservation finance.
Opportunity may knock
That’s understandable. These are early days, after all. But depending on what UBS decides to do with what it has acquired, the demise of Credit Suisse may create opportunities for others to expand their presence in blue finance and related areas.
One obvious contender is Standard Chartered, whose chief sustainability officer Marisa Drew is well regarded in the world of sustainable finance and who joined the UK bank in July from Credit Suisse. Earlier this month, StanChart also poached Credit Suisse’s global head of biodiversity, Oliver Withers.
StanChart does have credentials in this area: in 2018, it worked in partnership with the World Bank to structure a $15 million sovereign blue bond – the world’s first – from the Republic of Seychelles. The deal was led at StanChart by its then-global head of sustainable finance Daniel Hanna, who moved to Barclays in November.
Another interested observer might be Citi, which arranged a JPY7 billion ($53 million) blue bond and a $130 million social bond for Central American Bank for Economic Integration (Cabei) in January, selling it to Japanese and Taiwanese institutional investors.
It remains to be seen what will catch UBS’s eye as it trawls through the investment banking units it has acquired. Biodiversity and blue finance might still be nascent fields in investment banking terms, but are regularly touted as of critical importance for the future. Banks that want to bolster their credentials in them will be watching events in Zurich’s Paradeplatz closely.