It is not a Moody’s, but its power in Switzerland, an international centre for banking and financial advice and signals, is as substantial as it is understated. The Swiss Association for Responsible Investments SVVK has excluded four of India’s sterling companies – Tata Power, L&T, Bharat Dynamics and Walchandnagar Industries – in a nuclear weapons category. Reportedly, the Swiss National Bank has also received this advice.


Three institutions embody quintessential Swiss values of timeliness, cleanliness, hard work and respect for rule of law. One is the railways the other is postal services and the third is Migros a shop that every person in the country grows up with. Pension funds of these institutions that handle billions of dollars are among the who’s who of SVVK. In 2018, pension funds in the Switzerland had some CHF 880 billion (CHF1 is US$1.11) at their disposal. Beyond FDI and FII, usual suspects like banks and lending institutions, these are investors New Delhi should be engaging with on a regular basis not only to track sound and sustainable investments but also to enter the dialogue as a country that potentially is the democratic world’s largest market. Money, especially savings, and people’s sentiments are closely knit. The pandemic has predictably made money more wary.

Several Chinese firms are also SVVK’s list but my piece is limited to Indian companies. Besides, China’s hefty investments in Switzerland translates into access and leverage for Beijing that New Delhi does not have.

The story

My initial reaction to this news first reported by @AnandChandrasekhar of @Swissinfo_en (August 17, 2020) was to ask if it was a trade-related market access issue. If so, I thought, India could go to the World Trade Organisation (WTO) and take the non-technical barriers (NTB) route to quash the blacklisting. The story is elsewhere.

The Swiss group has a mandate to keep its members informed about environment, social and corporate governance (ESG). “…Screening and monitoring, dialogue with companies, recommendations for exclusion, communication and transfer of knowledge,” are some of the services it provides to its members. Exclusion is the last resort.

The obvious question to ask is – were the standard operating procedures followed in the case of the Indian companies? Was there any attempt to connect with them to seek a response as required by the exclusion process? Tamara Hardegger, Managing Director of SVVK told me there were no discussions with any companies.

Would it then be correct to conclude that the Indian companies have been excluded because India is not a party to the nuclear Non-Proliferation Treaty (NPT)? This is what Hardegger said, “…it is more accurate to say (the exclusion happened) because Switzerland is a signatory to the NPT.” India is not a signatory to the highly discriminative NPT and I will write about that in another blog.

Pensions funds are sacred in Switzerland

It is critical to differentiate between money in private Swiss banks over which people have little or no influence and money in pension funds that have a direct bearing on lives of 8.5 million people. In a country where 100,000 people’s signature can secure a parliament vote that can be written into law, pension issues are regularly debated in the Swiss media and political circles and people keep a close watch on developments.

There are two pillars of compulsory payments with a third track that people can opt out of. The first pillar is social security which is a distribution system financed by contributions from employees and employers. It is managed by the state and adequately covers basic living expenses.

The second pillar is where the crunch kicks in. It is a funded pension plan managed by pension funds that are organised as foundations that invest in real estate, government bonds and company shares. It is compulsory for employees and is financed by both employees and employers. This is composed of a mandatory and non-mandatory part.

The sum of the contributions of the employer should at least be equal to the sum of the contribution of the employees. It should enable the insured person to maintain his or her previous lifestyle in an appropriate manner. For the mandatory part, companies are legally required to pay employees a return of 6.5% of their savings. For their non-mandatory part, the return depends on the pension fund but it is pegged around 5% of their savings. Speculation is banned and government bonds and banks have low returns.

It is important to understand this because over the past decade, Switzerland has been moving at a steady clip towards green and sustainable energy. In 2017, Publica, the Alpine nation’s leading state pension fund announced plans to disinvest from five weapons companies following a campaign by SVVK to exclude 15 international firms.

The companies were accused of making products that violate Swiss law and internationally recognised conventions including the Ottawa Convention that bans anti personnel mines and the Oslo Convention on cluster munitions. Indian companies were on that list too.

ESG and why process matters

Responsible investors are increasingly faced with a key question. How will the government guarantee pensions paid to retired people when it is also a party to the many national and international conventions? This is one reason pension funds are investing heavily in construction and sustainable development projects in an around Europe. It is difficult terrain, but sustainable development, clean energy, responsible investments are now part of investor sentiment and conversations. It is also the promise of a legal and transparent conversation of which I have personal experience.

Fact remains that groups like SVVK are providing their services for the benefit of a large and representative part of the Swiss population and beyond. “It is thus natural that the laws and regulations resulting from the democratic consensus as well as international agreements and conventions (e.g. the Convention on Cluster Munitions) should be taken as the basis for the definition of objective and recognised ECG criteria,” SVVK’s website says. As a corollary international agreements concluded by Switzerland largely align with the ten principles of the United Nations (UN) Global Compact a business contract that has been signed by more than 8,000 companies in 145 countries.

Labour rights, human rights, environmental rights as well as production, sales and distribution of banned weapons are covered under one or another UN treaty. Is there cherry picking here? Indeed there is. It has been my long-standing view that diplomacy is self interest where trade, health, finance, home and environment ministries have to work together to put forth India’s views. Slogans are good, but they don’t feed people or replenish national treasuries. It is also my view that while the direction of India’s energy needs must move towards clean and sustainable energy, decisions that will have an impact on the lives of 1.3 billion people must be taken by India and India only. Energy, food and health are national security issues that must be discussed and debated threadbare.

For example, petroleum and other fuels are Switzerland’s main source of energy (50.6%), followed by electricity (25%), gas (13.5%) and wood (4.4%) Electrical energy needs are serviced by some 34% of nuclear energy some 60% is hydroelectric and conventional thermal power (around 2% non renewable). The country also manufactures arms and exports them (some in contravention of UN laws) but this is not a tit-for-tat blog. I am looking at answers for India’s growth in a world of growing ambitions, shrinking responsibilities, failing multilateralism and rule of law.

I am surprised the story wasn’t picked up in India. I am troubled that our foreign office does not have its ears to the ground in Switzerland or if they do, they have not publicly pushed back on the exclusion. Foreign policy is not just Washington, London and Pakistan driven. To those who say it doesn’t matter what a small country thinks, I would say think again. This is in the defence sector – India’s top companies should not be on the list. We deserve better.

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