Sustainable finance: Swiss targets still a long way off

Finance plays a central role in achieving both these national and global climate goals. A report by Swiss Sustainable Finance (SSF) highlights various financial instruments that support the shift to a climate-friendly economy and society. The report also provides concrete recommendations and options for action to improve the framework conditions.

By 2050, an annual investment volume of USD 3,500 billion on average will be required to transform the world's energy systems in such a way that the 1.5-degree target of the Paris Climate Agreement can be achieved. The Intergovernmental Panel on Climate Change (IPCC) estimates this enormous sum, not even counting other sectors such as agriculture and real estate1 . It is obvious that this is also a challenge for the financial sector. In its latest report, "Financing the Low-Carbon Economy - Instruments, Barriers and Recommendations," Swiss Sustainable Finance highlights the range of different financial solutions that already exist to promote a climate-friendly economy. The comprehensive compendium highlights 16 instruments and approaches, the application of which is illustrated by 8 additional case studies.

Direct investments with stronger leverage

According to the SSF market study, around one-third of all investments in Switzerland in 2019 were already managed sustainably, with most of these being investments on the secondary market. However, even more impact can be expected where new climate-friendly projects are directly financed or insured. This report therefore presents relevant instruments such as green bonds, direct real estate investments, green mortgages, insurance solutions, investments in private markets, joint financing and energy performance contracts in detail, explains how they work and provides an assessment of the maturity of the relevant instruments. Furthermore, the effectiveness of Swiss environmental legislation is highlighted, which significantly influences the success of various financial solutions.

Swiss case studies illustrate great potential

Concrete examples show how such financial solutions are having an impact in practice. For example, the city of Lausanne has established a company that rents roofs for the installation of solar panels. The electricity produced is sold directly to local users, representing a worthwhile investment for the operating company and giving customers access to cheap renewable electricity. Another example illustrates the important role of an infrastructure fund in realizing capital-intensive projects for local energy facilities based on renewable energy sources. And finally, another paper shows how an innovative insurance solution promotes energy efficiency investments by SMEs by covering the risk that the investment will not yield the calculated savings. Having been successfully implemented by a Swiss foundation in Latin America, the model is now to be rolled out in Europe.

Concrete recommendations for improved framework conditions

However, the potential of many of the financial solutions mentioned has not yet been exhausted. In order for financial solutions to mobilize the necessary sums for a transformation to a climate-friendly economy, existing barriers to a broader application of such instruments must be removed. SSF sees several urgent starting points in this regard, including filling existing data gaps on sustainability and climate resilience through private sector efforts, but also with government support. In addition, the creation of clear definitions and standards for climate-friendly investments and targeted education and training on the topic can contribute to further market development. However, the right price signals in the real economy are also crucial for the efficient use of such financial solutions: ultimately, a Co2 price must be defined that ensures that climate-friendly technologies quickly become established and CO2-intensive technologies become obsolete. And finally, the government can also further promote appropriate instruments through incentives or through the targeted reduction of investment risks.

Broad use of instruments accelerates transformation to climate-friendly economy

One thing is clear: the financial industry already has a broad range of instruments at its disposal that can make an important contribution to achieving Switzerland's climate targets and, globally, to a rapid transformation of the economy. There are starting points for all players in the Swiss financial system, as the overview chart clearly shows (see Table 1 in the report). The available instruments must now be used even more widely - and thus accelerate the transformation to a climate-friendly economy and society.

Further information:

> Financing the Low-Carbon Economy (English study, Summary: German, French)
> Introduction from the SSF CEO to the report (Short film)
> Newsletter SSF bimonthly
> Twitter @SwissSustFin
> LinkedIn Swiss Sustainable Finance

1 Intergovernmental Panel on Climate Change (IPCC) (2019): IPCC Special Report: Global Warming of 1.5 º C.