Building Bridges

Switzerland is one of the world's leading financial centers, managing around a quarter of the world's cross-border assets. The first sustainable financial products in Switzerland were launched in the 1980s, making the country a pioneer in Sustainable Finance and a natural candidate to become a leading global hub for Sustainable Finance. A key role of a global hub is to shape the debate through academic thought leadership.

The Department of Finance at the University of Zurich is striving to play a pioneering role in the field of Sustainable Finance. At the beginning of March, it launched the "Initiative in Sustainable Finance", which addresses current challenges in this area - from the implications of climate change and the preservation of biodiversity to social concerns and governance issues. The initiative's research focuses on four main areas: Financial Institutions and Sustainability, Artificial Intelligence and Sustainable Finance, Private Wealth and Sustainable Investing, Climate and Biodiversity Finance.

The department showcased how academic research can clarify practical and important questions at the initiative’s launch event during which recent research findings were presented to a wider audience.

• Postdoc and senior researcher Chiara Colesanti Senni investigates to what extent investors demand a higher risk premium from companies exposed to "natural risks", either because their operations or productivity suffer from natural disasters or because their activities have the potential to harm nature. She finds that investors care about the first type of risk, but less about the second. Such findings are relevant as they provide guidance for regulatory measures aimed at promoting sustainable objectives in the allocation of resources.
• Falko Paetzold and his team have investigated the extent to which investors are willing to pay for the positive environmental impact of their investments. They found that while sustainability is important to investors, they place less emphasis on the size of the impact on the environment. Knowing that one’s investment is "green" suffices. The increasing popularity of sustainable investments therefore does not necessarily lead to a reduction of environmental impact. 
• Zacharias Sautner discussed how lobbying on climate-related regulations affects the stock price of a firm. A key component of his team's research was the use of publicly available data and advanced AI-based technology to overcome the inherent opacity of a company's lobbying objectives. He concludes that investors demand a risk premium from companies that lobby against climate regulation to compensate for the risks associated with lobbying.