Emissionszentrale der Schweizer Gemeinden

ESG – the funding organisation of the Swiss municipalities

 
ESG was founded in 1971 as a self-help organisation of the Swiss municipalities. It is organised as a private-law co-operative, with membership being open solely to Swiss municipalities and their special-purpose municipal associations. It thus has a semi-public, semi-private status. ESG aims to raise funds for its member municipalities by issuing Swiss franc bonds on the Swiss capital market. In this connection, it acts in its own name but on behalf of and for the account of its members. By pooling its municipalities' fund requirements, ESG achieves a sufficiently large volume in order to be able to place this with investors on the Swiss capital market through the issue of bonds. In this way, the capital market is open not only to the Confederation, some of the cantons and the few large cities, such as Zurich or Geneva, but also to all Swiss municipalities.

 
Highly developed federalism
 
Switzerland is marked by a highly developed federalism. The competences are regulated in the Swiss state structure in such a manner that the cantons and their municipalities are responsible for all tasks that are not expressly a matter for the Confederation. Thus, for example, the Swiss municipalities are responsible for the construction and maintenance of local roads, for local public transport, for the supply of gas, electricity and water, for the waste disposal service, for the construction of school buildings or for the welfare service. Among other things, this results in a corresponding investment demand for the municipalities and the need for revenues of their own, which in Switzerland – in contrast to many other countries – are not provided "top-down" by transfer payments from the central government to the municipalities, but are generated by the municipalities themselves by means of taxes: In Switzerland, the municipalities have the right to levy their own income and wealth taxes, as well as duties. With regard to the scales: The total public sector revenues are divided into roughly equal parts over the three federative levels, the Confederation, the cantons and the municipalities. The municipalities thus render a significant share of public services.
 
 
History of ESG
 
At the beginning of the 1970s, the municipalities found themselves confronted with new infrastructure tasks entailing considerable investments. At the same time the rate of inflation was very high, against which the Swiss Government took action with urgent measures, in particular credit restrictions. This led to many municipalities’ no longer being able to raise the monies necessary for the financing of public tasks, or only on extremely unfavourable terms.
 
In this situation, the municipalities – together with their interest group, the Association of Swiss Municipalities – organised themselves and looked for solutions in order to raise the funds necessary for financing the infrastructure projects to be dealt with on better and more favourable terms. On 15 October 1971, 160 municipalities from 18 cantons founded ESG. By doing so, they created the possibility of also giving small and medium-sized municipalities access to the capital market, and thus to investors. In this way, the municipalities gained in autonomy and scope for action, because with their own ESG they were in a position to reduce their dependence on the traditional lenders.
 
This system of self-help has proved itself and has achieved around 1’000 Swiss Municipalities as members. Since its first bond issue in 1972, ESG has placed a total of 127 issues with an overall volume of CHF 7.2 billion with investors.
 
 
How do ESG bond issues work?
 
The procedure for raising funds is simple for the municipalities. ESG announces the bond issues to its members and the interested municipalities make their capital requirements known. ESG then checks the financing requests with respect to financial position and ESG commitment. The eligible municipalities are grouped into pools. This gives an issue volume suitable for the capital market. A bank oder a b banking syndicate, underwrites the issue completely on the terms negotiated with ESG and places the ESG bonds with the investors. On the payment date, ESG pays out the money to the municipalities involved.
 
The interest burden is minimised, the bearability of debts facilitated, the flexibility in the financial management increased. The raising of funds through ESG serves the long-term, stable and favourable financing of municipal tasks. Through the participation in ESG bond issues, the dependence on short-term interest rate fluctuations on the credit market is reduced. Apart from the advantage that all the costs incurred in connection with an issue are distributed proportionately among the members involved, financing through ESG at fixed interest rates also represents the benefit of a constant factor for financing planning.
 
Thus, however, ESG as a self-help organisation of the Swiss municipalities also assumes an important function from the point of view of national policy. It is important that with ESG, the municipalities have a valid alternative to the credit market at their disposal. ESG helps the municipalities of varying financial strength to raise funds on which, in the end, interest is paid at a uniform and favourable rate. ESG thus also ensures a certain balance between central and peripheral municipalities with unequal location advantages. This underlines ESG's important function from the point of view of national policy. 

Emissionszentrale der Schweizer Gemeinden (www.esg-ccs.ch/index.html)

Financial information, in German