Swiss Bankers Association joins Net-Zero Banking Alliance
The Swiss Bankers Association is aware of the role and responsibility of the banks and the financial centre in achieving the national and international net-zero goals, and is taking appropriate steps, together with its members. Since April 2022 it has been a supporting institution of the Net-Zero Banking Alliance, and also recommends its members sign up voluntarily to net-zero alliances as well as other international sustainability initiatives. Net-zero alliances set targets for achieving a climate-neutral economy, and promote international coordination and disclosure in the area of climate change mitigation. “By joining the Net-Zero Banking Alliance and recommending that our members sign up to alliances, we are making an important contribution to meeting the global climate and sustainability goals”, said August Benz, Head of Private Banking and Asset Management and Deputy CEO of the Swiss Bankers Association.
Financial institutions as intermediaries of climate-friendly financial flows
Switzerland ratified the Paris Agreement on climate change in 2017, and in 2019 set itself the target of reducing its greenhouse gas emissions to net zero by 2050. The financial sector can play an important role in achieving those objectives, in part by financing the transition to a climate-neutral Swiss economy, as the Swiss Bankers Association highlighted last year in a joint study with Boston Consulting Group. Investments amounting to CHF 387.2 billion will be needed to achieve the net-zero target by 2050. Around 91% of that figure can be financed via lending and the capital market. As intermediaries of financial flows, financial institutions can thus make an important contribution to achieving the goals.
Work with net-zero alliances to formulate targets and deliver results
Over recent years, many financial institutions have already adopted far-reaching measures to advance sustainability. They can also assist in achieving the global climate and sustainability goals by joining international net-zero alliances such as the Net-Zero Banking Alliance and the Net Zero Asset Managers initiative. These operate under the auspices of the Glasgow Financial Alliance for Net Zero (GFANZ), which was set up at the UN Climate Change Conference COP26 and is a broad coalition of net-zero alliances. When joining such an alliance, members commit to set specific targets for achieving climate neutrality and draw up a strategy for delivering them. They must also report publicly their targets and report annualy on progress . The relevance of individual initiatives may vary, depending on the financial institution’s business model. The Net-Zero Banking Alliance will be the main focus for investment and lending, while for asset managers, the Net Zero Asset Managers initiative will be most relevant.
One sector’s role among many actors
In order to achieve climate neutrality in Switzerland and worldwide by 2050, actions are needed in areas beyond the financial sector. Banks can already disseminate information to raise awareness of sustainability and climate change mitigation among various actors. By committing to net-zero alliances, they can also give themselves a framework within which to operate. However, they are not at liberty to dispose of assets under management as they see fit. In that sense, the financial system essentially replicates the actual situation in the real economy at a given point in time. Decisions are normally made by investors. In order to make financial flows – and thus, indirectly, the economy as well – more sustainable over the long term, it is essential for all stakeholders to be involved.
There are a number of international net-zero alliances and sustainability initiatives in the financial sector. Specifically, the Swiss Bankers Association recommends the following to its members:
- Principles for Responsible Banking (PRB)
- Principles for Responsible Investment (PRI)
- Net-Zero Banking Alliance (NZBA)
- Net Zero Asset Managers initiative (NZAM)
Different initiatives may be appropriate to financial service providers, depending on their business model.
At the UN Climate Change Conference COP26, international net-zero alliances1 were brought together under the umbrella of the Glasgow Financial Alliance for Net Zero (GFANZ). GFANZ’s remit is to support and coordinate net-zero alliances. It also promotes tried-and-tested practices, tackles joint challenges, provides input on global policy issues, and drives global climate ambitions.
The Net-Zero Banking Alliance and Net Zero Asset Managers initiative, which are recommended by the Swiss Bankers Association, are also part of GFANZ. The relevance of individual initiatives may vary, depending on the bank’s business model. An important distinction here is between off-balance sheet business (asset management on behalf of customers), and on-balance sheet business (lending, financing, etc.). In the former case, the focus is on the Principles for Responsible Investment and the Net Zero Asset Managers initiative, while for the latter, the Principles for Responsible Banking and the Net-Zero Banking Alliance are most relevant.
1 These include: Net-Zero Asset Owner Alliance (NZAOA), Net Zero Asset Managers initiative (NZAM), Net-Zero Banking Alliance (NZBA), Net-Zero Insurance Alliance (NZIA), Paris Aligned Investment Initiative (PAII), Net Zero Investment Consultants Initiative (NZICI), Net-Zero Financial Service Providers Alliance (NZFSPA).
The Net-Zero Banking Alliance covers banks’ on-balance sheet investment and lending activities. Specifically, members commit to align their attributable greenhouse gas emissions from their investment and lending portfolios with pathways to net zero by 2050 at the latest. That includes cutting CO2 emissions to net zero by 2050 at the latest, consistent with a maximum temperature rise of 1.5°C above pre-industrial levels by 2100. Once they have joined, banks have 18 months to define corresponding targets for 2030 and 2050. The first targets for 2030 relate to the most greenhouse gas-intensive sectors. Targets for the other sectors must be defined within three years. From 2030 onwards, signatories should then set intermediate targets every five years. They are also required to draw up a transition strategy and report annually on their progress.
The Net-Zero Banking Alliance is closely linked to the Principles for Responsible Banking. These are aligned with the Paris Agreement and the Sustainable Development Goals defined by the UN, and thus cover a broader spectrum of topics. The six principles provide a framework for a sustainable banking system and help banks to demonstrate how they are making a positive contribution to the environment and society. Signatories commit to embedding the principles across all business areas at the strategic, portfolio and transactional levels. They implement the climate goals under the terms set by the Net-Zero Banking Alliance in such a way that portfolios are aligned with the 1.5°C target.
The Net Zero Asset Managers initiative promotes actions by the asset management sector to drive the transition to net-zero emissions. The Asset Management Association Switzerland (AMAS) became a supporter organisation in December 2021. As with the Net-Zero Banking Alliance, signing up means supporting the target of net-zero greenhouse gas emissions by 2050 or sooner, and promoting investments to limit global warming to a maximum of 1.5°C. To achieve this, signatories commit to work in partnership with their asset owner clients, and are given a year to set interim targets for their assets. They are then expected to review these targets at least every five years, and progressively increase their proportion of climate-aligned assets. In addition to setting targets and regularly reviewing the progress made towards achieving them, they commit to accountability in the form of a published annual report.
Principles for Responsible Investment (PRI) is an international founding partner investor network that is linked to the Net Zero Asset Managers initiative. Like the Principles for Responsible Banking, it is broader in thematic scope than the Net Zero Asset Managers initiative. The PRI has defined and is implementing six principles comprising a menu of possible actions for incorporating ESG issues into investment practice.