Climate Test 2022 shows potential of the financial market

With the Paris Agreement, the almost 200 signatory states - including Switzerland - are aiming for the temperature not to warm by more than 1.5 degrees in order to prevent serious changes to ecosystems. This can only be achieved if the activities of the Swiss financial sector are also geared towards this goal.

In order to determine what progress the Swiss financial market is making and to what extent it is contributing to the achievement of the climate goal, the Federal Office for the Environment FOEN, together with the State Secretariat for International Finance SIF, again conducted the climate test this year according to the international PACTA method. This is the third time this has been done, following 2017 and 2020. A total of 133 financial institutions, i.e. pension funds, insurance companies, banks and asset managers, took part. The results are representative for the entire Swiss financial market. With this comprehensive progress review, Switzerland is an international pioneer.

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The results show progress and also provide clarity on the still untapped potential. A third of all participants not only have climate strategies, but also concrete climate targets for the year 2050 or earlier. In order to achieve these goals, most test participants state that, as shareholders of companies, they are working to ensure that these companies transform their business model in a climate-friendly way. Overall, investments in fossil fuels such as coal, oil and gas have decreased compared to the Climate Test 2020.

One third of the tested properties of the participating financial institutions are heated renewably, compared to only one quarter in 2020. Pension funds plan this for another quarter, insurance companies at least for 15 percent of their buildings. Around 40 percent of the mortgage lenders, especially banks, already provide incentives for climate-friendly renovations. This shows that the financial market can play an important role in accelerating climate transition. However, further major efforts are necessary for this.

Financial market still has considerable potential

On the basis of this year's survey, the financial institutions still have room for manoeuvre in the energy-efficient renovation of their building portfolios in order to reach the target set by 2050. Through equity investments, there are still investments in oil and gas production companies that want to expand their production instead of reducing it. Coordinated and targeted dialogue with portfolio companies of more Swiss financial institutions could help to adapt their transition plans. This could be supported by a corresponding standard. More financial institutions could set themselves ambitious climate targets and take measures that have an impact on the climate, such as the rapid energy refurbishment of the buildings in their portfolio. Moreover, most of the test participants do not have any short- or medium-term climate targets. Such targets would increase credibility on the way to becoming a climate-friendly financial company.

Climate tests create transparency

According to the Federal Council, Switzerland should become a leading location for sustainable financial services. The Federal Council is focusing in particular on transparency regarding the contribution of financial institutions and financial products to the achievement of climate goals. The more comprehensive the transparency and the more comparable the results, the more credible the efforts of the financial market will be for clients and politicians. The regular climate tests show decision-makers the successes and challenges. For their part, the test participants can compare their efforts with those of other financial institutions. For a meaningful overall monitoring, both a representative participation of all financial sectors and the willingness of the financial institutions to test all their climate-relevant assets remain central. The next climate test is scheduled for 2024.

More information: Sustainable Finance (admin.ch)