The Swiss financial sector is challenged to align financial flows with global climate and biodiversity goals to mitigate the impact of our carbon footprint. To enable and accelerate the transformation towards a low-carbon economy, PwC and WWF have developed a 6-step strategy to put Switzerland into pole position.
Global warming, climate change, and the loss of biodiversity are today’s greatest environmental challenges. For the first time ever, the risks associated with environmental deterioration and climate change come in at the top five of the «Global Risks Report 2020» published by the World Economic Forum. The Paris Agreement stipulates that global net CO2 emissions must be halved by 2030 (compared to 1990), and reduced to zero by 2050 – with the goal to limit the increase in temperature to a mere 1.5 degrees Celsius.
The financial sector is taking responsibility
We need to act now, as we are still a far away from achieving these goals. The Swiss financial sector today is investing in an economy that is fast-tracking global warming in the region of 4 to 6 degrees* Celsius, further encouraged by the funding of too many activities that harm the environment. Fracking and pipeline projects are just two of the most extreme examples. Such oblivion comes with enormous risks to our environment, ecosystem, humanity and the planet as a whole. This also involves risks for investors, who may be stuck with a portfolio comprising assets that could greatly depreciate in the future. The transition to a low-carbon economy has to be tackled without further ado. The financial sector and institutional investors are key in aligning financial flows to the Paris Accord, and are therefore in the best position to take on a leading role in this transition.
“I regard it as our society’s most pressing duty and that of PwC Switzerland as a company to work towards tangible solutions for a more sustainable economy.”
I regard it as our society’s most pressing duty and that of PwC Switzerland as a company to work towards tangible solutions, and I am therefore pleased to present the PwC and WWF joint report «Leading the way to a green and resilient economy», which reveals a strategy towards more sustainability in finance, with a focus on Switzerland’s strengths and positive impact of climate-responsible financial flows.
The 3-lever Swiss quality approach towards sustainable finance
Climate change is faster and more forceful than expected, and the fact that other European financial centres are taking the lead and regulators are moving ever faster is calling for swift actions. Despite its excellent position as a hub of innovation and excellence, Switzerland has a gap to bridge when it comes to sustainability. Our country also needs to ensure equivalency in order to maintain access to the European markets. Clients are pushing the financial sector for activism with respect to climate change and biodiversity topics, and they demand more sustainable investment products.
At the end of June 2020, the Swiss Federal Council outlined how Switzerland should be positioned as the leading location for sustainable finance. Albeit more than welcome and a step in the right direction, this declaration of intent does not include concrete guidelines. It leaves it up to the market players to come up with actionable measures and an effective roadmap. This is precisely where PwC and WWF step in. We propose an aligned Swiss quality approach to sustainable finance and a resilient green economy.
“Our action plan suggests that all financial flows are to follow a well set out and measurable transitional pathway in order to achieve net zero greenhouse gas emissions by 2050.”
Our action plan suggests that all financial flows (investment, lending and underwriting business) that are managed or controlled by Swiss financial institutions are to follow a well set out and measurable transitional pathway in order to achieve a significant decrease in greenhouse gas emissions by 2030, net zero greenhouse gas emissions, and fully recover biodiversity by 2050.
Our strategy entails over 40 actionable measures to be implemented over the next ten years, and three levers in order to achieve these goals. Lever one: reduce negative climate and biodiversity risks by screening portfolios for «transformation-incompatible» investments, loans and insurance claims, and shift financial streams from brown to green activities. Lever two: encourage transformation with the help of engagement and voting strategies for investee companies, and advocate for clear policy directions and smart regulatory frameworks. Lever three: enable a net zero, biodiversity-recovering economy. This can be achieved by providing new and innovative investment, lending or underwriting vehicles and opportunities, and unlocking capital for technologies and infrastructure required for the transition to a sustainable economy.
A greener economy in six steps
Building the economy of the future and making our financial system greener and more resilient is undoubtedly a tremendous task that will not happen overnight. It involves all relevant sustainable finance actors as well as politicians, supervisory authorities, companies, science and civil society.
We suggest a short-term focus on the following six-point plan:
- Set political goals and align financial flows with full biodiversity recovery. Turn Switzerland’s political commitment to net zero GHG emissions by 2050 into a legal obligation for financial actors.
- Revise the fiduciary duty so that financial actors and regulators need to integrate the financial risks associated with climate change and biodiversity loss and are responsible for minimising the negative impacts of financial flows on climate and biodiversity.
- Define clear standards in terms of climate and biodiversity-friendly and unfriendly. Promote meaningful metrics for climate and biodiversity-related financial risks and impacts.
- Request real economy companies and financial actors to establish measurable strategies and targets for reducing GHG emissions and negative biodiversity impacts, and then disclose their climate and biodiversity-related financial risks and impacts.
- Swiftly align asset owners’ and banks’ investment, lending and underwriting portfolios with net zero GHG emissions and full biodiversity-recovery pathways. Adjust capital requirements for banks and (re-)insurers accordingly.
- Facilitate the transition to a resilient green economy by advocating for correct pricing of negative climate and biodiversity externalities and for adopting preferential tax policies for climate and biodiversity-friendly activities.
The financial sector is playing a pivotal role in transforming the economy by reducing its exposure to high-emitting sectors and activities. However, PwC and WWF maintain that building the economy of the future and making our financial system greener and more resilient will only be possible with a broad coalition of all relevant actors. Actions speak louder than words. Let us act now.
Sustainable finance: Switzerland to the fore
Building on the Swiss attributes of excellence, innovation and credibility, PwC and WWF’s strategy and action plans aims to use the financial sector’s power as a catalyst for the transition towards a low-carbon economy, and to make Switzerland the number one hub for sustainable finance.
Worst has come to worst. Global warming and ecological crises and rising consumer expectations have led to an unprecedented need for swift action. Our Swiss quality approach to sustainable finance is a smart tool mix combining a variety of different policy, regulation and voluntary actions to align financial flows with global climate and biodiversity goals.
PwC and WWF call upon all relevant players to come together and join us in shaping a greener future.