Taking on the global financial system

Eva Schmassmann and Mark Herkenrath
Alliance Sud

Means of implementation: invest and regulate sustainably

According to UN estimates, achieving the Sustainable Development Goals (SDGs) will require an investment of the order of US$ 5,000 to 7,000 billion – annually!1 The need for financing seems enormous, but is put into a certain perspective if we remember that annual global economic output (measured as the combined gross domestic products of all countries) is estimated by the World Bank at around US$ 76,000 billion.

The need for funding must also be set off against the funds that are looking for investment opportunities. These naturally include pension fund assets, which by their nature have a long investment horizon. In 2014, the assets under management at the 300 largest public and private pension funds in the world totalled US$ 15,400 billion.2 And in 2016, assets invested by Swiss pension funds alone stood at CHF 823.9 billion.3 Enormous sums of money pass through Switzerland’s financial centre overall. For example, in 2018 there is more than CHF 6,170 billion held in securities in customer accounts with Swiss and Liechtenstein banks – assets that are used in investment advisory and/or asset management services.4

Sustainable business

The focus on funding needs nonetheless hides the fact that achieving the SDGs requires a change in financial investment patterns. It is not enough to make sufficient resources available to undertake the necessary investments in sustainability. The real task is to transform the entire financial system so that, at its heart, it facilitates sustainable development. If the core activities of the financial markets are impacting negatively on the SDGs, this negative impact cannot be cancelled out by a positive contribution to a sustainability fund. The focus should therefore not be on how we mobilize additional funds to realize the SDGs. The key issue here is what financial flows and investments are undertaken by private and public-sector actors in their core businesses today, and what is their purpose? How can these financial flows be aligned with the SDGs and the Paris Agreement on Climate Change?

With this in mind, both incentives and regulations must be rethought and re-set. A first step would be to recognize that the 2030 Agenda and Paris Agreement also place obligations on central banks and public pension funds. Mario Draghi, President of the European Central Bank, has already taken this first step for the ECB.5 In Switzerland, the National Bank is making a fuss about recognizing this global reference framework as such. In view of the scope of the investments concerned, the potential would be enormous: on its current course, the Swiss National Bank is promoting a catastrophic rise in temperature of 4-6°C.6 This contradicts the target laid down in the Paris Agreement of keeping global warming to less than 2° Celsius.

In the current debate about development financing, the parties like to point out that public spending on development cooperation is not in itself sufficient to meet the funding that is needed. All states thus appeal to the private sector. Equally, it is also true that private-sector resources alone are not enough to meet these needs. The state must have sufficient public funds to at least be able to guarantee basic human rights. These include the right to education and the right to health, for example. Here, the state must have sufficient resources to be able to fund free and universally accessible systems of healthcare and education. With this in mind, the primary contribution that the private sector can, should and must make to financing the SDGs is simple: pay taxes!

The Addis Ababa Action Agenda, which was also adopted by the international community in 2015 and forms part of the 2030 Agenda for Sustainable Development, rightly emphasizes mobilizing domestic resources, in other words tax revenues, to achieve the SDGs. With these revenues, countries can determine their own particular path towards sustainable development. With regard to SDG 10, which seeks to reduce inequalities not only between but also within nations, it is key that tax systems are progressive in nature. At the same time, measures must be in place to ensure that the people – and especially disadvantaged groups – are included in political decision-making processes.

Savings programmes despite billion-franc surpluses

In 2017, the Swiss Federal Government once again reported a budget surplus of around CHF 1 billion. Recent years have seen the same old game played with almost ritualistic regularity. In February, the finance minister proclaims an excellent budget result, while at the same time pointing out that prospects for the future are bleak, and announcing new savings programmes. The federal budget (excluding the cantons and communes) has closed the financial year with a deficit only once since 2007. Otherwise, the cumulative surpluses of the other 11 years come to around CHF 27 billion, corresponding to just under half of the Federal Government’s annual spending.

Meanwhile, the Government has decreed programmes to save billions of francs in the last few years alone. A stabilization programme for 2017--2019 reduced planned expenditure by more than CHF 2 billion overall. International cooperation was particularly badly hit by the cuts. While accounting for around 4 percent of spending, it had to absorb more than 28 percent of the savings. As part of budget proposals for 2018, financial plans for future years were once again corrected downward. As in the past, the savings particularly affected international development cooperation. It is no wonder that 2017 saw Switzerland's ODA spending fall back to its 2013 level for the first time. In 2016, it was still some 0.53 percent of gross national income, before contracting to 0.46 percent a year later.

In the federalist Swiss system, spending on social welfare especially is divided between the cantons and the communes. A destructive race-to-the-bottom on corporate taxation means that funding prospects here are in some cases even less rosy than at the  federal level. Instead of having a fair system of taxation to ensure that the public sector is able to fulfil its obligations, the cantons are undercutting each other with savings proposals. Social assistance is the current focus of this. For example, the Canton of Bern plans to cut its social assistance spending to 8 percent below the minimum defined by the Swiss Association of Welfare Organisations, SKOS. Also in the Canton of Bern, the majority of the electorate rejected a funding facility to support unaccompanied minor asylum seekers. In 2015, the Canton of Basel abolished Switzerland’s only specialist cantonal body for people with disabilities. Citing savings, in 2017 the Canton of Aargau abolished its equal opportunities office. The savings always affect those in greatest need. It therefore comes as no surprise that poverty in Switzerland has risen again in the past two years.

The Federal Council does not want to make any additional funding available for the implementation of the 2030 Agenda. In its first Voluntary National Review report to the HLPF in 2016, for example, it stated that implementation would be funded from within federal agencies’ approved budgets. In response to questions from Parliament, in 2018 it repeated that the implementation of the 2030 Agenda should be financed by the competent federal


Experience in recent years shows that sustainable development cannot be achieved by incentives and voluntary approaches alone. Switzerland currently has two good opportunities to set the right course in key areas. One is the revision of the Federal Act on Public Procurement (PPA) and the other is the Responsible Business Initiative. The revision of the PPA could permit the inclusion in the Act of criteria for sustainable public procurement which use the 2030 Agenda as a point of reference. Each year, the Federal Government, cantons and communes purchase goods and services for an estimated CHF 40 billion. The Federal government accounts for around 20 percent of this, the cantons and communes around 40 percent each. The aggregate figure corresponds to 6 percent of gross domestic product.7 This is a significant amount for the Swiss economy. However, the Federal Council’s draft does not contain any such criteria, and thus misses the opportunity to make public purchasing compatible with the 2030 Agenda.

The current political debate also offers a chance to drive the implementation of the 2030 Agenda forward by regulatory means where private-sector responsibility is concerned. In Switzerland, the Responsible Business Initiative, which is supported by over 100 organizations, wants businesses to incorporate binding protections for human rights and the environment in all of their business processes. This due diligence obligation would also extend to the foreign activities of businesses headquartered in Switzerland. Here, too, the Federal Council seems unwilling to pursue regulatory intervention, and is rejecting this civil society initiative.

Foreign economic policy and international tax issues

The 2030 Agenda calls upon prosperous countries like Switzerland to significantly increase their investments in international development cooperation – a requirement that Switzerland is sadly failing to meet at present. First and foremost, however, in the interests of policy coherence for sustainable development, these countries must design their international financial and tax policies in such a way as to mobilize financial resources at the local level and ensure that these policies now promote – rather than hinder – sustainable development in countries that are less well off. Trade policy in particular presents a number of key challenges, specifically with regard to commodities trading, curbing illicit financial flows and cross-border profit shifting by multinationals for tax reasons.

Switzerland bears a great deal of responsibility in all of these areas. Not only is it one of the world’s major financial centres and a global leader in cross-border asset management, where it has a 30 percent market share, it is also home to a large number of multinational corporations. Many of these companies are involved in commodities trading. For that reason, it is hardly surprising to learn that Switzerland handles around 20 percent of the global trade in commodities8. Nevertheless, the Federal Council refuses to adopt transparency requirements that would enable misuse and corruption in commodities trading to be uncovered. In its proposed revision of company law, it follows the EU’s example by restricting itself to transparency rules that apply to companies in the extractive sector only, with no impact on commodities trading – the very sector that is so important to Switzerland.

On the whole, Switzerland’s foreign economic policy and its international financial and tax policies still have a long way to go in ensuring that sufficient, consistent consideration is given to global respect for human rights and the requirements of the 2030 Agenda for Sustainable Development. A number of Swiss NGOs recently joined forces to produce a detailed report in which they pointed out various questionable gaps.9 In a report submitted to the Human Rights Council following his official country visit to Switzerland, UN Independent Expert on the effect of debt and other financial instruments on human rights Juan-Pablo Bohaslovsky drew particular attention to deficiencies in curbing illicit financial flows and problems in relation to international corporate taxation.10

Foreign economic policy: trade and investment

The 2030 Agenda and Sustainable Development Goals have yet to feature in the Federal Council’s strategy on foreign economic affairs. However, this is partly due to the fact that the strategy, originally formulated in 2004, was last revised and updated in 2011. Although the principle of sustainable development is mentioned in the strategy, it is merely alluded to as a task for economic development cooperation. It is high time, therefore, for the Federal Council to draw up a new foreign economic strategy in which it embeds implementation of the 2030 Agenda and policy coherence for sustainable development as key strategic tasks.

It should be noted that companies registered in Switzerland are still under no obligation to screen their foreign direct investments and supply chains for human-rights risks and potential environmental damage. Instead of adopting a ‘smart mix’ of legally binding measures in its National Action Plan for implementing the UN Guiding Principles on Business and Human Rights, the Federal Council places its faith entirely in voluntary corporate social responsibility. A popular initiative that has now gained the support of some 100 civil society organizations seeks to remedy this situation.11 The Federal Council has recommended that Parliament and the electorate reject the initiative.

As far as its free trade agreements are concerned, in the past Switzerland – mostly acting together with the European Free Trade Association (EFTA), but occasionally also on a bilateral basis (e.g., with China) – has entered into agreements that fail to include specific protective clauses regarding human rights and sustainable development. Although it strives to include these human rights clauses and chapters on sustainability in ongoing negotiations, it nevertheless seems more than willing to make concessions in this area. Neither is Switzerland afraid to enter into negotiations with countries that have not signed the relevant international environmental agreements or conventions on labour, and in which the human rights situation is precarious. This makes the Federal Council’s continued refusal – despite the submission of a variety of parliamentary procedural requests on the subject – to review free trade agreements prior to signing for their impact on human rights and other aspects of sustainable development all the more alarming.

At the same time, subsidies and non-tariff protective measures that support Swiss farmers in the international agricultural market considerably distort competition. Ultimately, it is farming enterprises in developing countries that adopt sustainable production methods that suffer. Although Switzerland is currently in the process of phasing out its export subsidies for agricultural products under pressure from the WTO, it is replacing them with compensation measures that have the exact same effect. Direct payments are now to be made to producers that act as suppliers to the export-driven food industry. In other words, Switzerland still has a great deal to do in terms of correcting competition-distorting measures in the agricultural sector. 

Financial and tax issues: illicit financial flows and corporate taxation

The Federal Council’s most recent strategy report on Switzerland as a financial hub ("Financial market policy for a competitive Swiss financial centre“, October 2016) neglects to mention the 2030 Agenda and Sustainable Development Goals. The same is true of the “Report on international financial and tax matters” published each year by the Federal Department of Finance. The fact that this department’s main remit also has a part to play in achieving the SDGs seems to have escaped its notice thus far.

In both these documents, the fight against illicit financial flows from developing countries to Switzerland is referred to purely as a development cooperation task, thus creating the impression that the countries of origin are solely responsible for such flows. However, in demanding a significant reduction in illicit financial flows, the 2030 Agenda also addresses the destination countries, which are urgently called upon to take effective measures to combat untaxed or illegally obtained assets.

There is still a considerable amount of work to be done by Switzerland in this respect. In an evaluation conducted at the end of 2016 by the Financial Action Task Force (FATF/GAFI), the body that develops international standards on combating money laundering and the financing of terrorism, Switzerland’s measures to prevent money laundering were found to contain a wide range of shortcomings. The country is called upon to remedy the situation by the end of 2019. The Federal Council has announced it will present a draft package of follow-up measures by mid-2018; however the results remain to be seen.

What is clear is that Switzerland has agreed to the automatic exchange of financial account information in tax matters (AEOI) with numerous countries in recent years. However, actually putting these agreements into practice will entail far-reaching data protection obligations. And low-income countries are nowhere to be found on Switzerland’s list of AEOI partners, which currently comprises OECD member states and a select few of the more advanced emerging economies.

Switzerland’s official reason for excluding poorer countries from the AEOI is that these nations have not signed the requisite multilateral conventions. However, one option available to Switzerland would be to agree to set up pilot projects for the introduction of AEOI in certain developing countries, under which it provisionally waives the reciprocity requirement for the partner jurisdictions. Unlike other industrialized nations, Switzerland has not yet seized this opportunity.

Finally, the existing Swiss tax privileges for the foreign earnings of multinational corporations are extremely problematic in terms of implementing the 2030 Agenda. They create huge incentives to shift profits to Switzerland – and transfers of this kind are causing developing countries to lose hundreds of billions in potential tax revenues. (According to International Monetary Fund estimates, the figure amounts to some US$ 200 billion a year.) Although the Federal Council intends to abolish the current tax privileges in its plans to reform company taxation in Switzerland (commonly known as Tax Proposal 17), it also means to replace them with measures that will ultimately have the same effect (patent boxes, general reductions in corporate taxes, etc.). In other words, the practice of transferring profits from abroad – especially from poorer countries – to Switzerland will remain attractive for multinationals.

The Swiss CSO-Platform 2030 Agenda is a coalition of more than 40 Swiss-based civil society organizations. Founded on 25 September, 2017 it unites CSOs from the fields of development cooperation, environmental protection, gender, peace, sustainable economic activity and trade unions. It is our goal to express our views jointly on key issues in the implementation of the 2030 Agenda in and through Switzerland and to draw up recommendations for the attention of Swiss politicians and administrations, other decision-makers and the interested public.

On the occasion of the 2018 High Level Political Forum we prepared an alternative CSO report. This report is not a comment on the official Voluntary National Review of Switzerland, but was prepared in an independent process and thus paints a genuine picture of how different CSOs in Switzerland perceive the challenges ahead.

This executive summary takes up two chapters of the CSO report, focusing on the means of implementation and on Switzerland’s foreign trade and international tax policy. The complete report can be downloaded at: www.plattformagenda2030.ch or www.socialwatch.org/report2018.


2 Manfred Rösch: Die 20 grössten Pensionskassen der Welt, in: Finanz und Wirtschaft, 2.10.2015.

4 State Secretariat for International Finance SIF: Swiss financial centre. Key figures April 2018.

5 Stan Jourdan: European Central Bank is party to the Paris Agreement on climate. In: Positive Money Europe. 28.2.2018

7 Federal Office for the Environment FOEN: Fachinformationen zu ökologischer öffentlicher Beschaffung

8 Public Eye, "Commodities", available at: https://www.publiceye.ch/en/topics-background/commodities-trade/commodit..., accessed 16 May 2018.

9 Foreign Policy Working Group of the NGO-Platform Human Rights, "Finanzplatz Schweiz und Menschenrechte: Weissgeldstrategie mit schwarzen Löchern", in Wo bleibt die Kohärenz? Menschenrechte und die Schweizer Aussenpolitik, 2017, 24–25, available at: https://www.humanrights.ch/upload/pdf/170609_Kohaerenz-Papier_-NGP-Platt....

10 Juan Pablo Bohoslavsky, "Report of the Independent Expert on the effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights, on his visit to Switzerland - Advanced Edited Version", Country Visits of the Independent Expert on the effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights (OHCHR, 15 March 2018), available at: http://www.ohchr.org/EN/Issues/Development/IEDebt/Pages/CountryVisits.aspx.

11 "Konzernverantwortungsinitiative", available at: http://konzern-initiative.ch/, accessed 16 May 2018.