Financial companies, government and regulators face a daunting task to make Switzerland a hub for sustainable finance, amid growing skepticism from lobby groups.
This content was published on December 15, 2021 – 09:00
The world’s leading center for wealth management aims to replicate this status in green finance – by channeling investments into climate-friendly projects through bonds, funds and other financial instruments.
A flurry of new initiatives has emerged following the COP26 climate summit. The Swiss Sustainable Finance organization, made up of actors from the private and public sectors, as well as universities and investors, submitted a roadmap to reach the destination of the sustainable finance hub. This follows a series of recommendations from the Swiss Asset Management Association.
On December 1, the Swiss government, along with banks UBS and Credit Suisse, launched a CHF 1 billion ($ 1.08 billion) fund 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 to combat fake green financial products (greenwashing).
The NGO Greenpeace recently led the rule on 51 Swiss and Luxembourg sustainable funds and found that there was “a lot to be desired”.
âThe so-called sustainable investments currently on offer are not only barely sustainable, they even harm the climate,â Greenpeace said.External link.
NGOs and pressure groups are wary of promises made by the financial sector. They argue that before banks, insurance groups and pension funds create a lucrative sustainable finance market, they should first clean up their own actions.
WWF called the efforts of the Swiss National Bank (SNB) and the financial regulator “largely insufficient to tackle the climate crisis and the loss of biodiversity”.
And the NGO Climate Alliance accused the Swiss financial center of contributing to malnutrition and the death of children around the world by investing in fossil fuel projects.
âWords are not enough. We are facing huge greenwashing activity in the financial sector, âsaid Prof. Marc Chesney, President of the Competence Center for Sustainable Finance at the University of Zurich. “A financial sector that is truly green should stop financing fossil fuels.”
According to Chesney, the current financial activities of the big banks around the world and the Swiss National Bank (SNB), in terms of loans or investments respectively, correspond to an increase in the global average temperature by the end of the century, which is significantly higher than the 1.5 to 2 Â° C provided for by the Paris climate agreement.
Even a survey by the Swiss Ministry of the Environment found that financial players have invested far more in fossil fuels than in renewables, and may even contribute to an expansion of coal and oil production.
Speaking at the Building Bridges sustainable finance conference, which took place from late November to early December in Geneva, Swiss private banker Patrick Odier urged banks to “speak the word” on climate promises by at least reaping “fruits at hand”, such as the phasing of investments in charcoal production. He called on banks to come up with concrete plans to reduce their carbon footprint, but did not call for an end to all investments in fossil fuels.
German advisory group Zeb believes that banks face a threat to their existence even if they fail to pull out of climate-damaging investments. “If the actors do not succeed quickly, a comprehensive intervention by politicians and supervisors with the corresponding regulations is unlikely to be far,” said Dirk HollÃ¤nder, Zeb partner.
In Switzerland, this is unlikely to happen this year or next year, if ever. A government review to determine whether new financial laws are needed to enforce sustainable finance standards will not be completed until late 2022.
Financial institutions are required to report their environmental risks to the AutoritÃ© de surveillance des marchÃ©s financiers, but for the most part Switzerland is returning to its tradition of trusting companies to self-regulate. âThere are currently no mandatory regulations in Switzerland,â Secretary of State for International Finance Daniella Stoffel told the Building Bridges conference. âWe believe in the markets. It is the choice of each actor whether he wants to be in the crowd or out of the crowd.
One such example of self-regulation is a proposed ‘climate score’ system, announced by Finance Minister Ueli Maurer, which would measure how well financial products align with the Paris climate target of limiting global warming to 1 , 5 Â° C. This should be in place by summer 2022.
But Chesney is not impressed. âSelf-regulation doesn’t work. It’s a bad joke, âhe said. âIn Switzerland, labels should be developed to define the quality of sustainable financial products. Independent specialists, without conflict of interest, should be involved in such a development. “
If Switzerland overcomes the challenges of creating a global hub for sustainable finance, the rewards look promising. The Swiss sustainable finance market grew by 31% last year to reach a current value of 1.52 trillion francs ($ 1.6 trillion), although a lack of benchmarks currently makes it difficult to assess. the quality of these products.
As the COP26 commitments are implemented, âswathes of economic and financial value will be created and destroyed,â said Odier, who is also president of Swiss Sustainable Finance. âIn contrast, the climate transition creates an opportunity worth $ 5.5. trillion a year [worldwide] in our opinion.
Part of this sum could be invested in upgrading Switzerland as an exporter of advanced green technologies. A published studyExternal link by Lombard Odier Bank and Oxford University says Switzerland has increasingly lost its competitive edge in this area since 1995 compared to many other countries. But it is also possible to close the gap with countries like Germany, by stepping up innovation in areas such as solar power and wind turbines.
And a report from the Ethos sustainable investment foundationExternal link calculates that the major Swiss manufacturing companies would collectively save CHF 34 billion per year (for example in energy, water and land costs) by spending CHF 28 billion per year to become net zero emitters.