Switzerland is facing the challenge of making its banks greener
In view of the increasing skepticism of interest groups, financial companies, government and supervisory authorities are faced with the major task of making Switzerland a sustainable financial center.
This content was published on December 15, 2021 – 9:00 am
swissinfo.ch
The world’s leading wealth management center aims to replicate this status in the field of green finance – by channeling investments into climate-friendly projects through bonds, funds and other financial instruments.
In the course of the COP26 climate summit, a flood of new initiatives has emerged. The organization Swiss Sustainable Finance, consisting of private and public actors as well as science and investors, has presented a roadmap to reach the destination Sustainable Finance Hub. This follows a series of recommendations from the Asset Management Association Switzerland.
On December 1, the Swiss government, together with the banks UBS and Credit Suisse, launched a fund of CHF 1 billion (USD 1.08 billion) to invest in social and environmental projects in developing countries.
The government also wants to issue green bonds by the end of next year and is considering measures against counterfeit green financial products (greenwashing).
The NGO Greenpeace recently managed 51 sustainable funds in Switzerland and Luxembourg and found that “leaves a lot to be desired”.
“The so-called sustainable investments currently on offer are not only barely sustainable, they even harm the climate.” Greenpeace explainsexternal link.
Harmful investments
NGOs and interest groups are suspicious of promises made by the financial sector. Before banks, insurance companies and pension funds create a lucrative marketplace for sustainable finance, they should first clean up their own actions, they argue.
The WWF described the efforts of the Swiss National Bank (SNB) and the financial supervisory authority as “largely inadequate to combat the climate crisis and the loss of biodiversity”.
And the NGO Climate Alliance accuses the Swiss financial center of contributing to malnutrition and the death of children worldwide by investing in fossil fuel projects.
“Words are not enough. We are confronted with enormous greenwashing activities in the financial sector,” says Professor Marc Chesney, Chair of the Center of Competence for Sustainable Finance at the University of Zurich. “A really green financial sector should stop financing fossil fuels.”
According to Chesney, the current financial activities of the big banks worldwide and the Swiss National Bank (SNB) in terms of loans and investments correspond to an increase in the global average temperature by the end of the century that is significantly higher than the 1.5 to 2 ° prescribed by the Paris Climate Agreement C.
Even a survey by the Swiss Ministry of the Environment showed that financial actors invested far more in fossil fuels than in renewable energies and may even contribute to expanding coal and oil production.
Low hanging fruits
In his speech at the sustainable finance conference Building Bridges, which took place in Geneva from the end of November to the beginning of December, the Swiss private banker Patrick Odier urged the banks to “keep the talk” when it comes to climate promises by at least “hanging fruit” like phasing pick up investments in coal production. He urged banks to come up with concrete plans to reduce their carbon footprint, but remained reluctant to call for an end to all fossil fuel investments.
The German advisory group Zeb assumes that banks are threatening their very existence if they do not abandon climate-damaging investments. “If the actors do not succeed quickly, a comprehensive intervention by politics and supervision with appropriate regulations is probably not far,” said Zeb partner Dirk Holländer.
In Switzerland, this will not happen this year or next – if at all. A government review of whether new finance laws are needed to enforce sustainable finance standards will not be completed until late 2022.
Financial institutions are obliged to report their environmental risks to the financial market regulator, but Switzerland largely falls back on its tradition of trusting companies to self-regulate. “There is currently no mandatory regulation in Switzerland,” said State Secretary for International Finance, Daniella Stoffel, at the Building Bridges conference. “We believe in the markets. Every actor has the choice whether he wants to come out of the crowd or in the crowd. “
One such example of self-regulation is a “Climate Score” system announced by Finance Minister Ueli Maurer, which is intended to measure how closely financial products correspond to the Paris climate target of limiting global warming to 1.5 ° C. This should come into force by summer 2022.
“Bad joke”
But Chesney is not impressed. “Self-regulation doesn’t work. It’s a bad joke, ”he said. “In Switzerland, labels should be developed to define the quality of sustainable financial products. Independent specialists without conflicts of interest should be involved in such a development. “
Should Switzerland master the challenges of building a global sustainable financial center, the rewards look promising. The Swiss market for sustainable finance grew by 31% last year to a current value of 1.52 trillion CHF (1.65 trillion USD), although the quality of these products is currently difficult to assess due to a lack of benchmarks.
As the COP26 commitments are put into practice, “large chunks of economic and financial value are being created and destroyed,” said Odier, who is also President of Swiss Sustainable Finance. “On the other hand, climate change creates a $ 5.5 opportunity. Trillions a year [worldwide] in our estimation.”
Part of this sum could be invested to strengthen Switzerland as an exporter of green cutting-edge technology. ONE Study issuedexternal link the Bank Lombard Odier and the University of Oxford noted that Switzerland has increasingly lost competitiveness in this regard compared to many other countries. But there is also potential to close the gap with countries like Germany by promoting innovations in areas such as solar energy and wind turbines.
And a Report of the sustainable investment foundation Ethosexternal link calculates that the leading Swiss manufacturing companies together would save 34 billion francs a year (for example on energy, water and land costs) by spending 28 billion francs a year to become net-zero emitters.