The financial sector plays a central role in achieving these national and global climate goals. A report by Swiss Sustainable Finance (SSF) highlights various financial instruments that support the transition to a climate-friendly economy and society.
The financial sector plays a central role in achieving these national and global climate goals. A report by Swiss Sustainable Finance (SSF) highlights various financial instruments that support the transition to a climate-friendly economy and society. The report also contains specific recommendations and options for action for improved framework conditions.
An annual investment volume averaging USD 3,500 billion is necessary up to the year 2050 in order to convert 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) quantifies this enormous sum, not even counting other sectors such as agriculture or real estate 1. It is obvious that the financial sector is also challenged here. In its most recent report “Financing the Low-Carbon Economy – Instruments, Barriers and Recommendations”, Swiss Sustainable Finance shows the range of different financial solutions that already exist today for promoting 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 greater leverage
According to the SSF market study, around a third of all investments in Switzerland were managed sustainably in 2019, mostly investments in the secondary market. Even more impact can be expected where new climate-friendly projects are directly financed or insured. This report therefore presents corresponding 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 gives an assessment of the maturity of the corresponding instruments. The effectiveness of Swiss environmental legislation, which significantly influences the success of various financial solutions, is also examined.
Swiss case studies illustrate great potential
Concrete examples show how such financial solutions unfold their effect in practice. For example, the city of Lausanne has set up a company that rents roofs for the installation of solar modules. The electricity produced is sold directly to local users, which is a worthwhile investment for the operating company and gives customers access to inexpensive renewable electricity. Another example illustrates the important role of an infrastructure fund in the implementation of capital-intensive projects for local energy systems based on renewable energy sources. And finally, another article shows how an innovative insurance solution promotes energy efficiency investments by SMEs by assuming the risk that the investment does not bring the calculated savings. After the model was successfully implemented by a Swiss foundation in Latin America, it 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. So that the financial solutions can mobilize the necessary sums for a change to a climate-friendly economy, existing barriers to a broader application of such instruments must be dismantled. SSF sees various urgent starting points here, among other things, existing data gaps in the field of sustainability and climate compatibility should be filled through efforts by the private sector, but also with support from the government. In addition, the creation of clear definitions and standards for climate-friendly investments and targeted training and further education on the topic can contribute to further market development. However, the right price signals in the real economy are also decisive 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 continue to promote appropriate instruments through incentives or targeted reduction of investment risks.
Widespread use of the instruments accelerates the conversion to a climate-friendly economy
One thing is clear: the financial industry already has a wide range of instruments at its disposal that can make an important contribution to the achievement of Swiss climate targets and to a rapid transformation of the economy globally. There are starting points for all players in the Swiss financial system, as the overview graphic clearly shows (see Table 1 in the report). It is now necessary to use the available instruments even more broadly – and thus to accelerate the change to a climate-friendly economy and society.
> Financing the Low-Carbon Economy (English study, Summary: Deutsch, French)
> Introduction by the SSF CEO to the report (Short film)
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1 Intergovernmental Panel on Climate Change (IPCC) (2019): IPCC Special Report: Global Warming of 1.5 º C.