Decarbonisation with a net zero obligation is the Swiss economy’s concrete contribution towards a committed climate policy and a greener future. There are plenty of good reasons why Switzerland as a business location will benefit from this commitment.
Tracking the carbon footprint
Decarbonisation refers to the elimination of all CO2 elements within a value chain. Where this can’t be achieved naturally, carbon is offset through the meaningful trading of emissions within the value chain. This form of offsetting is part of the Paris Agreement and is aimed at preventing obligations from being met purely by outsourcing emissions to other parties.
The targeted decarbonisation of the economy is based on legal frameworks and self-responsible commitment on the part of the economic players (see blog post ‘Change needs a framework’). An increasing number of companies have communicated their commitment to net zero carbon emissions and the next few years will be crucial for successfully implementing these plans.
Efforts to reduce carbon emissions are currently under way in many economic sectors. However, suitable solutions are not yet available to tackle all of the challenges. This is because innovations and technologies can only be sufficiently scaled in part, as the hydrogen technology example shows (see box down below). Also, the 20 to 30-year time frame of Switzerland’s long-term climate strategy exceeds companies’ usual planning horizons.
Beyond national borders
Nevertheless, there’s a degree of urgency for companies to incorporate the topic more actively in their strategic decisions, since Switzerland is disproportionately affected by climate change. Changes to the climate are having a major impact on our Alpine nation and the water tower of Europe. Switzerland is, for example, warming up at twice the global average rate. The costs of unabated climate change upon society and the economy by far exceed the financial investment required for climate protection measures. The Federal Office for the Environment (BAFU) expects annual losses of up to 4% of gross domestic product by 2050 as a result of the impacts of climate change. So, the net zero target is already of economic importance.
Climate change is also having short-term and medium-term impacts on businesses. The Swiss private economy has tight international ties. From procurement through to distribution and financing, Swiss companies rely on foreign partners or, like finance companies, conduct a significant part of their activities abroad. It’s therefore understandable that Swiss companies often also have to take foreign regulations into account. One example is the requirements resulting from international efforts like the Green Deal or the EU action plan for financing in line with ESG criteria (environment, social and governance) and the generally rising ambitions, which – propelled by a heightened sense of awareness and urgency – impact multinational corporations in particular. However, this also applies to Swiss companies with corresponding activities in the EU or other countries and to companies that are exposed to cross-border financial flows.
The expectations of consumers, employees, interest groups and investors have changed enormously. They often expect companies to comply with ESG criteria. Also, the pressure is increasing for companies to sustainably reduce emissions as part of their sustainability strategy, as external carbon offsetting will no longer be sufficient in light of the stricter regulations and a general public which is becoming more and more sensitive to the issue.
With COVID-19 having been the focus of attention for over a year, decision-makers are now directing more consideration to other issues again, particularly climate change. To move current efforts forward, a number of decisions have to be taken, which will lay the groundwork for developing a green economy and a sustainable Swiss financial centre and open up interesting opportunities.
Industrial production is shaped by rapid change involving innovation, global disruption, digitalisation and new business models. This offers an opportunity to actively address the subject of decarbonisation, develop solutions and, as a result, build up long-term market advantages.
Greater innovative strength and resilience
Swiss companies rely on a climate-resilient business location. Thanks to the dual study education system and renowned educational institutions (e.g. ETH, EPFL, universities and universities of applied sciences), the level of innovation in Switzerland is high. These institutions often work hand in hand with industry on research and development projects, which can lead to spin-offs and pioneering cleantech innovations in the area of decarbonisation especially. This potential has a huge influence on location attractiveness and is a major cornerstone for building a green economy.
Wide-ranging feedback effects
Climate risk correlates with other economic, social and health risks. This means that a loss in biodiversity is a threat to financial market stability. Signatory states to the Convention on Biological Diversity are scheduled to discuss such feedback effects in autumn 2021. What’s more, the growing population is accelerating the risk of zoonoses, as was the case with
A company’s value structure has a noticeable impact on its operational performance. Companies that focus on sustainability and have established extensive decarbonisation measures are demonstrably stronger with regard to all ESG-related topics. One approach that’s gaining increasing attention is the circular economy. It’s centred around reducing the consumption of primary raw materials, establishing a more resilient economy and society, and tackling systemic risks connected to resource wastage – by capitalising on the technical capabilities of Switzerland and its access to financial resources.
As a result, a circular business model maximises the value of capital and recyclables, while simultaneously increasing a company’s climate resilience. According to the definition in the report by PwC and WWF, the circular economy involves four strategies:
a) Slow: longer life cycles slow down consumption, reduce costs, increase efficiency, lower procurement risks and harbour potential for new business models (e.g. leasing).
b) Narrow: a company that uses fewer resources per product can invest in research and development, and encourage greater innovation.
c) Close: the transformation of waste into recyclables closes the reusable material cycle, reduces procurement costs, extends the customer relationship and increases both customer contacts and recommendation rates.
d) Regenerate: the regeneration of resources optimises natural ecosystems. In turn, this secures future sources for production resources and procurement channels.
The circular economy supports sustainable development. It aims to secure the resources that are required by present and future generations. Minimising the use of resources leads to less waste and fewer energy losses for products over time, and by reducing emissions, the circular economy can make an important contribution towards achieving the ‘net zero’ targets.
The creation of a low-carbon hydrogen economy has the potential to play an important role in decarbonisation. It can, among other things, be used a source of energy and as an alternative to natural gas. In addition, green hydrogen used in steel production or in the manufacturing of synthetic kerosene, for example, has the potential to reduce emissions in areas where this was previously virtually impossible due to energy efficiency reasons. A study published recently by Strategy&, the global strategy consulting arm of PwC, indicated that based on a continuous sustainability trend where hydrocarbons are gradually replaced in the economy, the global demand for hydrogen will almost double between 2019 and 2040 from 71m tonnes to 137m tonnes. But, creating this kind of economy requires local and international investments in infrastructure, such as in the construction and operation of hydrogen filling stations, in distribution networks and technology, in the development of new and cleaner hydrogen production and in project development to make technological applications available and useful for industrial sectors.
Industrial Manufacturing & Automotive Territory Leader, Partner Assurance, PwC Switzerland
Tel: +41 58 792 2166