Transitioning to a low-carbon economy, a daunting challenge for the financial industry

Helvetia Durabilis*. SDG 13: Climate Change Mitigation Measures. By Tim Radjy and Cecilia Serin

On April 22, we celebrated the 51st Earth Day. The world greeted with enthusiasm the US announcement defining its new carbon emissions reduction target, namely, to get to half its 2005 levels by 2030. This new commitment rekindles the Paris Agreement goals, which so far have eluded most national commitments [1]. Despite the drop in carbon emissions during the COVID19 pandemic, the world is still headed towards a catastrophic temperature rise of more than 3 degrees Celsius in this century. In Switzerland, temperatures have already risen by 2 degrees Celsius since 1850.

The Intergovernmental Panel on Climate Change (IPCC) reckons we’ll need to mobilize 3,500 trillion dollars per year until 2050 to ensure the energy transition limits global warming to 1.5 degrees Celsius. And yet, the world’s 60 largest banks invested 3,800 billion dollars to fossil fuel companies since the Paris Agreement, according to the NGO Reclaim Finance.

In Switzerland, a country that aims to cut its carbon emissions by half by 2030, the financial regulator FINMA underlines that “banks and insurances must keep the public adequately informed of the risks they undertake. This notably includes the repercussions of climate change. So far, financial institutions aren’t showing enough transparency with regards to the financial risks driven by climate change.” Last year, a report of the Climate Alliance Switzerland criticized the complete absence of climate-related policies across three-quarters of the 60 largest pension funds in Switzerland and underscored the Swiss National Bank’s extensive financing of fossil fuels. “Investments made in Switzerland are gearing us towards a temperature rise of 4 to 6 degrees”, stated the Managing Director of WWF during the presentation of an action plan for the Swiss financial industry in September 2020. Finally, according to a Symbiotics survey published in October 2020, only 6% of the 150 impact funds under analysis were investing in climate change mitigation and green energy.

[1] The Paris Agreement is a legally binding international treaty on climate change. It was adopted by 196 signatories during the COP21 in Paris on the 12 of December 2015, and came into force on 4 november 2016.

COP26, an opportunity for the Swiss financial industry to make tangible commitments

In November 2020, Swiss Sustainable Finance published its report « Financing a low-carbon economy» which presented a range of financial instruments that offer tangible solutions to finance a low-carbon economy. Moreover, 650 institutions managing 87 trillion dollars have registered with the Carbon Disclosure Project, according to Sustainable Investment Market Intelligence (SIMI). The time has come to make measurable commitments before the 26th conference on climate change in November 2021 in Glasgow.

* A chronicle of the Building Bridges Community prepared with the support of Sustainable Finance Geneva and the AlphaMundi Group.

Written this month by Tim Radjy, SFG Vice-President and the Managing Partner of AlphaMundi, and Cecilia Serin, Public Relations Officer at AlphaMundi.


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