Financing options for Switzerland’s nature transition
In December 2022, 196 countries, including Switzerland, signed up to the Kunming-Montreal Global Biodiversity Framework (GBF) and committed to protecting and restoring nature and halting biodiversity loss. The framework consists of global targets to be achieved by 2030 and beyond to safeguard and sustainably use biodiversity. Sufficient investments are required to ensure that Switzerland is able to achieve its national biodiversity objectives under this framework. The pressures on Swiss nature – such as unsustainable land use, pollution and climate change – are intensifying. As in other jurisdictions, the Swiss government is increasingly integrating nature-related considerations into their regulatory and supervisory approaches. However, unlike with the climate, there had never been any assessment of the financing needs in this area until now. This is likely also due to a lack of a global reference path for nature; that is, no equivalent to ‘net zero’ and therefore no national assessments of the related financing needs.
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To address this, the Swiss Bankers Association (SBA) commissioned the global consulting firm Boston Consulting Group (BCG) and Quantis, BCG's sustainability consultancy, to assess the financing requirements for achieving Switzerland’s nature goals. In addition to figures, the study also provides insights into the role of banks in addressing the national and global impacts on nature in Switzerland and identifies mechanisms for scaling nature financing. It therefore offers an initial quantitative factual basis for collaboration with policymakers, financial institutions and other stakeholders. The study first identified ten key financing areas for strengthening nature resilience in Switzerland. These were then analysed to identify investment potential for Swiss banks up to 2050.
Additional investment is required in water infrastructure and regenerative agriculture
The study concludes that the nature transition in Switzerland requires annual investments of CHF 5.3 billion by 2050, 85 percent of which would be publicly financed due to the high proportion of publicly owned assets and the limited commercial viability of many measures. The largest financing areas, accounting for more than 75 percent of total demand, are water infrastructure, including wastewater management, river revitalisation and other nature-based solutions (NbS), as well as hydropower rehabilitation, and regenerative agriculture, including capital investments in farming practices and income support for transitioning farmers. Current spending in this area amounts to an estimated CHF 3.2 billion per year in existing capital expenditure and investment. The outlay is primarily public financing for water infrastructure and biodiversity-linked agricultural subsidies. An incremental CHF 2.1 billion per year is required to meet the total financing need of CHF 5.3 billion – an increase of ~66%. Given the continuing constraints on public finances in the coming years, greater mobilisation of private capital will be needed to achieve Switzerland’s nature goals.
Loans and investments, advisory services and financing of nature projects
Until recently, nature was a niche topic for the global financial industry. Swiss banks, however, have now recognised the importance of the issue and are starting to incorporate aspects of nature into their overall sustainability strategies and assessing nature-related risks and opportunities. Due to Switzerland’s sustained investment in adaptation infrastructure and insurance coverage, banks are not considered to be materially exposed to nature risks. Nevertheless, nature-related challenges are giving rise to new business models that offer banks financing options to address the global nature impact of their clients. Swiss banks are well positioned to support Switzerland’s nature transition by offering sustainable finance products, such as green and sustainability-linked loans and bonds, and focusing on sustainable supply chain financing. They can also offer their clients, particularly SMEs with limited sustainability capacity, dedicated advisory services and partner with actors in the ecosystem to support financing where there is both demand and project readiness. However, their influence is limited.
Potential solutions include blended finance and private co-financing of publicly owned assets
For banks to meaningfully scale private finance for nature, there are many obstacles to overcome: To guide future action, there needs to be stronger demand signals from the private sector, a pipeline of investable projects, better data quality and common benchmarks. What’s more, private investors face challenges such as limited financial returns on investments in nature-related capital, inconsistent metrics and a lack of standardised frameworks. Market mechanisms, such as blended finance – using guarantees, loans with a lower interest rate (known as concessional loans) or capital for the targeted assumption of losses (first-loss capital), for example – to de-risk projects that are not yet viable, and private co-financing of publicly-owned assets to mobilise capital for public infrastructure or services with stable cash flows – for example through public-private partnerships, green loans or bonds – can help to improve commercial viability. Finally, collaboration between banks, public sector actors, research institutions and civil society can improve data quality, develop common measures and support the wider mobilisation of funds.