Sustainability is key for the Swiss financial centre
It should now be clear to everyone that we cannot continue to manage the world’s diminishing natural resources in such a wasteful way. This is why the financial sector has supported the goals of the Paris Agreement on climate change from the outset. Many banks have set themselves ambitious targets and their performance will be measured against them. Customers are also increasingly keen to take advantage of sustainable financial services. The significance of sustainable investments has thus grown enormously in asset management and investment advice, as well as in pension funds and insurers. Their volume has risen more than tenfold in the past five years from 140 billion Swiss francs in 2015 to over 1,520 billion in 2020.
Investment and financing activities provide leverage
Alongside investment, financing is just as important. The total investment cost required to make Switzerland carbon neutral by 2050 comes to almost 400 billion francs, which works out at around 13 billion francs a year on average. As vast as this sum might sound, the good news is that our financial centre is so strong that much of the required investment can be financed through lending and the capital market. These are the findings of the latest study on financing the energy transition recently published by the SBA in conjunction with Boston Consulting Group. So it is important we harness this potential in order to achieve our climate goals.
Focus on the Swiss economy’s energy transition
There are frequent calls to ban certain investments in industries with a large carbon footprint. But that would not necessarily lead to a reduction in greenhouse gas emissions – financial flows would simply be redirected elsewhere. On top of that, carbon-intensive businesses are likely to disappear as no one is prepared to invest in companies with no future that are continuously losing value. Rather than calling for a ban on this type of financing activity and forcing banks into a policing role, it makes more sense to restructure these companies so they can align themselves in future with the government’s climate goals. It is also important to remember that, although it is the banks that offer loans, it is business owners who make the investment decisions. Efforts should therefore be focused on considering how we can best support individuals and companies in the transition to sustainable solutions. Financial service providers play an important role here in financing and investment advisory activities. Banks are pushing a series of their own initiatives, have significantly expanded their offering of services built around ESG factors, and are aligning their business activities with the principles behind relevant international efforts.
Transparency and measurability are essential prerequisites
Banks cannot achieve this alone. For the energy transition to succeed, the government, business and the financial centre need to work together in harmony. It is up to the state to create optimal framework conditions. Transparency is an essential prerequisite for sustainable investments and financing. Customers have to know the environmental footprint of the goods and services they buy. Rules on transparency must apply to the whole economy, not just financial service providers – this is the only way that investors can decide whether they can actually achieve something with their sustainable investments. Ultimately, sustainability needs a standardised rating system. It is not always easy for investors to identify green or sustainable investments, which in any case may not meet their expectations. Efforts to introduce standardisation are currently under way. Here it will be important to achieve a sensible degree of standardisation without creating a new mountain of regulatory red tape.
Sustainability: a competitive advantage and reputation factor
Lastly, it is vital for businesses and private individuals to continue to invest in sustainable measures such as upgrading buildings, switching to more energy-efficient production processes or modernising vehicle fleets. Numerous projects in different sectors of the Swiss economy show that major strides have been made towards carbon-neutral production. This shift has a competitive aspect as well: non-sustainable business models are obsolete and are becoming more and more costly. Sustainability is both a competitive advantage and reputation factor – and ultimately a matter of economic survival.
This article was first published in Weltwoche, 16 August 2021 edition.