Sustainable finance

For financial flows without environmental degradation abroad

20.03.2025, Climate justice, Finance and tax policy

The Swiss financial centre has demonstrated that it will not voluntarily give up business involving environmental degradation abroad. The Financial Centre Initiative aims to amend the Constitution to include a ban on new investments in coal, oil and gas by Swiss financial market players.

Delia Berner
Delia Berner

Expert on international climate policy

For financial flows without environmental degradation abroad

The rainforest in Pará, Brazil, is climatically significant and indigenous land. But it is increasingly being destroyed by deforestation, mines and infrastructure projects - mostly involved are Swiss financial players.
© Lalo de Almeida / Panos Pictures

Felling rainforests helps drive environmental degradation and global warming. That is common knowledge. Besides, illegal slash-and-burn practices often curtail the land rights of indigenous communities and also violate their human rights. Switzerland's banking major UBS knows this. Yet it invests in large Brazilian agribusinesses that are involved in illegal forest clearances in the Amazon, as revealed some time ago by the Society for Threatened Peoples.

Each year, Swiss banks and insurance companies fund or insure billions worth of business operations that degrade the environment and drive global warming. According to a McKinsey study, the Swiss financial centre is responsible for as much as 18 times the amount of carbon emissions generated in Switzerland. Already ten years ago, the international community enshrined in Article 2.1(c) of the Paris Climate Agreement the key role of the financial system in addressing the climate crisis. It laid out the goal of "making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development." Switzerland has ratified the Agreement and is bound by international law to contribute to achieving this goal. Approved by an overwhelming majority of Swiss voters, the Climate Protection Act further requires the federal government to ensure the climate-friendly orientation of financial flows. But implementation is not going smoothly.

"Voluntary" assumes that there is a will

The Federal Council is relying on voluntary and self-regulatory implementation measures by the finance industry, and rejects any additional state regulation. It did, however, support a motion by National Councillor Gerhard Andrey (Greens) which provided for more stringent actions, should the measures in place prove ineffective by 2028. The Parliament rejected the motion in the spring of 2024, however, and saw no need for further action.

 

We are now seeing that voluntary promises by these banks are not enough.

 

By January 2025 at the latest, it became clear why the financial sector's voluntary measures and promises were worth so little. The six largest American banks and the world's biggest asset manager BlackRock reneged on the climate promises they had made just four years earlier. Speaking on Western Switzerland television RTS, Professor Florian Egli of the Technical University of Munich said: "We are now seeing that voluntary promises by these banks are not enough. They have reneged on their promises." The UBS, too, is considering withdrawing from the Net Zero Banking Alliance, in which, since 2021, numerous banks had committed to a net zero target by 2050. The banks therefore want to continue funding environmental degradation, if it increases their profits.

The Financial Centre Initiative is needed

Anyone relying on voluntary measures is exposing itself to the whims of the financial sector, which is obviously guided not by climate science but by easy money and political winds. This is no way to combat the climate crisis. The International Energy Agency has long made clear in its Net Zero Roadmap that promoting new fossil fuel extraction is not compatible with meeting the Paris climate goals.
This prompted Climate Alliance Switzerland to launch the "Financial Centre Initiative" in late 2024, jointly with the WWF, Greenpeace and politicians from all the federal parties except the right-wing SVP. It is intended to ensure that no one else operating out of Switzerland finances environmental degradation and global warming. Should the Government and Parliament continue to sit on their hands, the electorate has the power to amend the Constitution to prohibit Switzerland's financial sector from funding or underwriting any additional extraction of coal, oil or gas. The same rules would then govern all players.

Alliance Sud supports the popular initiative in order that Switzerland can finally activate its greatest lever to enhance worldwide climate protection and fully implement the Paris Agreement.

Federal Popular Initiative 'For a sustainable and future-oriented Swiss financial centre (Financial Centre Initiative)’

The initiative aims for:

  • the environmentally sustainable orientation of the financial centre, with financial market players aligning their business activities abroad with international climate and environmental goals. Consideration is being given to binding transition plans to be implemented by the companies concerned.
  • a prohibition on the funding or underwriting of new fossil fuel extraction projects or the expansion of existing ones.

Alliance Sud supports the initiative because:

  • Switzerland is not sufficiently implementing the Paris Climate Agreement through self-regulation by the financial sector.
  • the financial centre bears the greatest climate responsibility of all players under Swiss influence. It represents Switzerland's most important lever for helping to achieve worldwide climate protection.

 

 

Global Logo

global

The Alliance Sud magazine analyses and comments on Switzerland's foreign and development policies. "global" is published four times a year (in german and french) and can be subscribed to free of charge.

Article, Global

Banks' climate initiatives: a major disappointment

27.06.2024, Finance and tax policy

To align themselves with the Paris Agreement, banks have established and extolled the virtues of voluntary climate alliances. A recent European Central Bank study shows them to be ineffective.

Laurent Matile
Laurent Matile

Expert on Enterprises and Development

Banks' climate initiatives: a major disappointment

Huge quantities of coal are powering giant aluminium plants in East Kalimantan, Indonesia.
Swiss banks are involved in these supposedly "green" plants. © Dita Alangkara / Keystone / AP Photo

In November 2021, US Treasury Secretary Janet L. Yellen told the COP26 in Glasgow that “the private sector is ready to supply the financing to set us on a course to avoid the worst effects of climate change”. Under pressure to support the economic transition away from carbon-intensive activities – or, in other words, to “align themselves with the climate goals” of the Paris Agreement – financial players worldwide have joined in a series of voluntary climate-related initiatives. They include the Glasgow Financial Alliance for Net Zero (GFANZ), spearheaded by former Bank of England Governor Mark Carney, and billionaire financier Mike Bloomberg.

At the launch of the GFANZ at the COP26, some 100 banks, insurers and asset managers committed to injecting capital worth USD 130 trillion to bring down CO2 emissions and fund the energy transition. Under that commitment, the projects and businesses funded by the loans from signatory financial institutions would have to be “net zero” by 2050, i.e., they should balance the amount of greenhouse gases emitted with the amount removed from the atmosphere. According to the International Energy Agency (IEA), achieving climate neutrality by 2050 will require annual investments of USD 2’000-2’800 billion in clean energy in developing and emerging countries alone. The announcements made in Glasgow by the financial sector elicited high hopes in some quarters... and a healthy dose of scepticism in others.

In a recent study by the European Central Bank (ECB), however, researchers examined the impact of EU banks' voluntary climate commitments – chiefly the Net Zero Banking Alliance, being one of the eight sectoral initiatives making up the GFANZ – on their lending behaviour and in terms of the climate impact of these practices on corporate borrowers. The findings are an embarrassment for the financial players involved.

Profile of signatory banks

The NZBA signatory banks (hereinafter “NZBA banks”) head-quartered in the Eurozone are mega-banks that devote more of their funding to “brown” sectors, with a greater portion of their loans going to the mining sector (including coal, oil and gas), and a smaller portion to sectors classified as “green” under EU taxonomy. NZBA banks' own priority objectives are power generation, oil and gas, and transport.1 As regards motivation, the study shows that banks are making voluntary climate commitments to boost their ESG (Environmental, Social, Governance) rating and reap reputational and financial benefits, especially when it comes to institutional investors.

The implications for divestment

Sectoral targets represent a voluntary commitment by banks to reducing the emissions they fund by 2030 and 2050, compared to a predetermined baseline. Should the banks choose to meet their targets by divesting, this should mean less funding for the targeted sectors.

The study finds that NZBA banks have cut back their lending to priority sectors by some 20 per cent. At first glance, this would seem to confirm the hypothesis that banks are disengaging from “brown” sectors. But this is not the case. The study found no evidence of reduced investment by NZBA banks – any more than their non-signatory competitors – in priority sectors, or in other high-emission enterprises such as mining companies or companies whose activities are not classified as “green” under EU taxonomy. NZBA banks also did not increase their lending to “green” companies as defined by EU taxonomy after joining the alliance. The study concludes that this casts doubt on the assumption that NZBA banks are actively divesting from “brown” sectors and investing instead in “green” sectors.

No penalties for polluting companies...

The study further shows that the banks' climate commitments have not led to increases in interest rates for the funding of "brown" companies. The observed increase does not exceed 0.25% for priority sectors and 0.55% for the mining sector. Nor do NZBA banks apply lower rates to "green" businesses as defined in EU taxonomy. In other words, the banks neither penalise bad performers nor reward good performers!

... or leverage effect on companies

The ECB study shows that the NZBA has no leverage effect on companies. Indeed, rather than divesting, "climate-aligned" banks can pursue a strategy of "engagement", by pushing corporate borrowers to cut their emissions. They could first insist that the companies to which they lend should set their own climate targets. Indeed, if a company commits to reducing its carbon emissions, the first step is to set a decarbonisation target, which specifies the amount by which the company aims to cut its emissions and the timeline for that reduction. This is tantamount to laying out a climate transition plan.

However, despite the increase in the number of companies that have set such targets since 2018, those borrowing from NZBA banks showed no greater propensity than others to set climate targets. In other words, NZBA banks have no specific climate leverage over companies by way of their engagement.

No impact from voluntary initiatives

Since the signing of the Paris Agreement, financial institutions have announced – with great fanfare – their intention to factor climate considerations into their lending and investment decisions. The findings of the ECB’s first-of-its-kind study brought the lack of impact of the Net Zero Banking Alliance into sharp focus. Although NZBA banks have reduced the volume of their lending in emission-intensive sectors, the "divestment" is no greater than that of non-signatory banks. Moreover, the study is very clear about the outcomes obtained through engagement strategies: corporate clients of NZBA banks are no more active in setting decarbonisation targets than others. The ECB researchers themselves conclude that their study’s findings hold crucial implications for the ongoing debate about "greenwashing" and whether credit rationing by banks can help the global economy realise its net-zero emissions ambitions. As such, there is still every reason for frustration and bewilderment.

From the voluntary to the mandatory

This discussion is now at a turning point. The year 2024 will be decisive in the EU as regards the climate transition plans which financial institutions, too, are expected to formulate. Indeed, such transition plans are central to a new European regulatory architecture, the precise contours of which are yet to be laid out or harmonised.2 If they are to be effective, these transition plans must avoid a narrow approach to short- and medium-term climate risk management, and instead encourage banks to reorient their activities in favour of transition. The oversight bodies must be invested with powers, and penalties imposed in the event of non-compliance. An initial step will be taken in Switzerland with the publication – from 2025 onwards – of the first "mandatory climate disclosures“, including by banks, and which are also expected to contain “a transition plan that is comparable with the Swiss climate goals”. Regrettably, the regulatory framework is still imprecise and leaves room for interpretation as to what exactly is required in terms of climate transition plans. These initial reports will therefore have to be carefully scrutinised to gauge the relevance (or otherwise) of this new approach.

 

 

The Net Zero Banking Alliance

So far, the most important voluntary climate initiative launched by banks is the Net Zero Banking Alliance (NZBA). It is supported by the UN and comprises 144 members from 44 countries representing some 40 per cent of total assets under management. Several Swiss banks are on board, including UBS (co-founder), Raiffeisen and the cantonal banks of Zurich, Berne and Basel. In signing the commitment, banks undertake to “align lending and investment portfolios with net-zero emissions by 2050”, with “intermediate targets for 2030 or earlier”. These targets must refer to the sectors being prioritised by the banks for decarbonisation, i.e., the most greenhouse gas intensive sectors in their portfolios, and on which the banks can have a significant impact. Furthermore, banks must publish a transition plan explaining how they intend to achieve their sectoral targets. While still at a preliminary stage, the combination of detailed target setting, UN monitoring and outside validation makes the NZBA a stringent, if not the most stringent climate initiative for banks.

 

1 Three years after signing, the banks must have set targets for the nine sectors designated by the NZBA, namely, agriculture; aluminium; cement; coal; commercial and residential real estate; iron and steel; oil and gas; power generation; and transport.
2 The main aim is to ensure coherence between the approaches of the Capital Requirements Directive (CRD), the Corporate Sustainability Reporting Directive (CSRD), and the very recent Corporate Sustainability Due Diligence Directive (CSDDD).

Global Logo

global

The Alliance Sud magazine analyses and comments on Switzerland's foreign and development policies. "global" is published four times a year (in german and french) and can be subscribed to free of charge.

Article

Sustainable Finance: a generational project

06.12.2023, Climate justice, Finance and tax policy

In 2015, governments committed to aligning financial flows with the climate objectives of the Paris Agreement. Where do things stand with implementation? What is Switzerland doing? A stocktake.

Laurent Matile
Laurent Matile

Expert on Enterprises and Development

Sustainable Finance: a generational project

The financial sector's commitment to climate protection is very contradictory.

© Adeel Halim / Land Rover Our Panet

Signing the Paris Agreement in 2015 the international community committed to significantly reducing greenhouse gas emissions, aiding developing countries in climate change mitigation and adaptation, and directing both public and private finances into a low-carbon economy and climate-resilient development. Article 2.1(c) of the Paris Agreement embodies this goal. The jargon therefore speaks of "Paris alignment".

On 3 and 4 October, government officials, business leaders and representatives from NGOs came together at the 3rd Building Bridges Summit for a two-day workshop in Geneva to explore this orientation and its alignment with Article 9 of the Paris Agreement. This was done with a view to the first "global stocktake" to be conducted at COP28. Under Article 9, developed countries pledged to extend financial support to developing nations for climate change mitigation and adaptation measures. Numerous delegates and NGOs in Geneva have raised concerns that industrialised countries are emphasising private finance alignment while disregarding their commitment to assisting developing countries.

Financial flows for economic activities based on fossil fuels continue to far surpass those meant for mitigation and adaptation measures. The most recent IPCC synthesis report affirms that sufficient capital exists globally to close the worldwide climate investment gaps. The predicament is therefore not a shortage of capital, but rather the ongoing mismanagement and misallocation of funds that is impacting both public and private capital flows. Nevertheless, redirecting financing and investment towards climate action, primarily in the neediest and most vulnerable nations, is no silver bullet. The challenges of a "just transition" go much further, and developing countries also expect financial support from the North.

Responsibility of governments

Businesses, including those in the financial sector, are not bound by the Paris Agreement. Governments therefore have a responsibility to translate climate change commitments into national legislation. Put simply, "Paris alignment" requires governments to ensure that all financial flows contribute to achieving the climate goals of the Paris Agreement. Implementing Article 2.1(c) will require a variety of instruments, and it is primarily up to individual governments to identify the regulatory frameworks, measures, levers and incentives needed to achieve alignment. This will require concrete steps leading to tangible and measurable results for individual companies and financial institutions.

What is Switzerland doing?

By ratifying the Paris Agreement, Switzerland has also committed to making its financial flows compatible with climate goals. The Federal Council is also working with the industry to ensure that the financial centre plays a leading role with regard to sustainable finance. However, it is still relying primarily on voluntary measures and self-regulation.

With the Climate and Innovation Act, the Swiss electorate decided, in June 2023, that Switzerland should achieve climate neutrality by 2050. Interim greenhouse gas reduction targets have been set, along with precise benchmarks for certain sectors (construction, transport and industry). Broadly speaking, all companies must have reduced their emissions to net zero by 2050 at the latest. With specific reference to the goal of aligning financial flows with climate goals, Article 9 of the Climate Act stipulates that: "The Confederation shall ensure that the Swiss financial centre contributes effectively to low-carbon, climate-resilient development. This includes measures to reduce the climate impact of national and international financial flows. To this end, the Federal Council may conclude agreements with the financial sector aimed at aligning financial flows with climate objectives".

The role and responsibility of Switzerland as a financial centre

The facts are clear: the Swiss financial centre is the country's most important "climate lever". The CO2 emissions associated with Switzerland's financial flows (investments in the form of shares, bonds and loans) are 14 to 18 times greater than the emissions produced in Switzerland! It would therefore be logical for the Federal Council to give priority to these financial flows. Given its size – around CHF 7800 billion in assets under management – the Swiss financial centre could make a significant contribution to achieving the climate goals. However, this would require effective measures here at home to help redirect financial flows. This would include credible CO2 pricing, both domestically and – as yet unimplemented – internationally.

Range of measures for Swiss companies and financial market players

From January 2024, large companies – including banks and insurers – will be required to publish a report on climate matters covering not only the financial risks a company faces from its climate-related activities, but also the impact of its business activities on the climate ("double materiality"). The report must also include companies’ transition plans and, "where possible and appropriate", CO2 emission reduction targets that are comparable to Switzerland's climate targets. Like the UK and a number of other countries, the European Union has introduced similar obligations. Thus, for once, Switzerland is not lagging behind.

PACTA Climate Test

Starting in 2017, the Federal Council has recommended that all financial market players – banks, insurers, pension funds and asset managers – should voluntarily participate in the "PACTA Climate Test" every two years. The aim is to analyse the extent to which their investments are in line with the temperature target set by the Paris Agreement. The test covers the equity and bond portfolios of listed companies and the mortgage portfolios of financial institutions. The PACTA is designed to show the portfolio weight of companies operating in the eight most carbon-intensive industries, which account for more than 75 per cent of global CO2 emissions (oil, gas, electricity, automobiles, cement, aviation and steel).

However, participation in the PACTA test remains voluntary and participants are free to choose the portfolios they wish to submit. Furthermore, the publication of individual test results is not (even) mandatory for financial institutions that have set themselves a net-zero target for 2050. The Federal Council recommends rejecting a motion calling for improvements to these aspects, arguing that existing decisions are already sufficient.

Self-declared net-zero targets

Many Swiss financial institutions have voluntarily set themselves carbon-neutral targets under the auspices of the Glasgow Financial Alliance for Net Zero (GFANZ). The Federal Council supports this approach. However, these initiatives raise crucial questions about transparency and credibility. What is the percentage of financial institutions that have set net-zero targets? What is the percentage of assets and business activities that will actually be net zero by 2050? How comparable is the information, i.e., final and interim targets and progress made by financial institutions? To increase the transparency and accountability of financial actors, the Federal Council had originally proposed the conclusion of sectoral agreements with them. This was rejected by the financial lobbies. However, the Climate Act now envisages the conclusion of such agreements, and the Federal Department of Finance is to submit a report on the matter by the end of the year.

Swiss Climate Scores

The Swiss Climate Scores (SCS) were developed by the authorities and industry and introduced by the Federal Council in June 2022 in keeping with GFANZ. The basic idea is to create transparency regarding the Paris alignment of financial flows in order to encourage investment decisions that contribute to achieving the global climate goals. Here too, the approach remains voluntary for financial service providers.

At the Building Bridges Summit, the CEO of the asset management firm BlackRock Switzerland lamented the low uptake of the SCS in her industry. This confirmed the misgivings expressed by Alliance Sud when they were introduced. The daily newspaper NZZ also recently noted the low uptake and inconsistencies in implementation by financial institutions – describing the SCS as a "refrigerator label" for financial products compared to the EU's sophisticated regulatory framework.

Paradigm shift

Implementing Article 2.1(c) of the Paris Agreement will therefore also be a major undertaking for Switzerland. The range of largely voluntary measures adopted so far clearly falls short of the Paris commitments. A paradigm shift is therefore urgently needed.

The Federal Council recently proposed the adoption of a motion calling for the creation of a "co-regulation mechanism" and a commitment that this mechanism would become binding "if, by 2028, less than 80 per cent of the financial flows of Swiss institutions are on track to achieve the greenhouse gas reductions envisaged in the Paris Agreement".

It is now up to the parliament to take the first steps to tackle this generational project.

 

 

Article

Is the greenwashing fog about to clear?

30.09.2022, Finance and tax policy

In late May, public prosecutors in Frankfurt searched the offices of Deutsche Bank and its asset management subsidiary DWS. The reason was presumed greenwashing practices. Time to ensure greater clarity in also Switzerland.

Laurent Matile
Laurent Matile

Expert on Enterprises and Development

Is the greenwashing fog about to clear?

Wind turbines near the decommissioned nuclear power plant Grohnde, Lower Saxony. – The European Union wants to label investments in nuclear energy as "green", environmental organisations criticise this sharply.
© Foto: KEYSTONE / DPA / Julian Stratenschulte

Greenwashing accusations against DWS have been rife for months now. The specific accusation is that asset managers have been exaggerating the sustainability of DWS products as regards environmental protection and climate change. According to the Public Prosecutor's Office, sufficient evidence has been found to show that ESG criteria (environment, social, governance) are being observed only for a fraction of investments.

Last year, the US Securities and Exchange Commission (SEC) and the German Federal Financial Oversight Authority (BaFin) launched separate investigations into allegations by a whistleblower that DWS was selling its funds as more environment-friendly than they in fact were. The greenwashing allegations that came to light in August sent DWS shares plunging by more than 20 per cent, and precipitated the resignation of CEO Asoka Wöhrmann.

And what is the situation in Switzerland?

This case was viewed as a shot across the bow of the entire finance industry, which is under regular suspicion of engaging in greenwashing practices. Here in Switzerland too, the Swiss Financial Market Supervisory Authority (FINMA) is now taking an interest in communication relating to financial products: it now conducts more inspections in an effort to combat misleading advertising with "green" promises.

Recent years have witnessed a substantial rise in demand from clients and investors for sustainable financial products and services – coupled with the danger that clients and investors could be deceived about the supposed sustainable properties of financial products and services (financial products labelled "sustainable", "green" or "ESG").[1] Greenwashing is the term applied when customers of financial institutions are knowingly or unknowingly deceived or given misleading information about the sustainable properties of financial products.

FINMA's tasks include protecting financial market clients and investors from improper business practices, especially deception. FINMA investigations have now produced clear evidence of greenwashing practices in the sale of financial products and services, and determined that providers often make "vague to misleading promises" about their products.

To counter the risk, transparency around sustainability must be enhanced as a matter of urgency, by introducing standardised requirements and indicators, classifications (taxonomy) and methods for gauging the positive and negative impacts of investments on the climate and on sustainable development. Under the Paris Climate Agreement, Switzerland assumed commitments that also apply to its financial centre.

No specific legislative basis

There are currently no specific transparency-related provisions governing products and services that are described as "sustainable". Only general rules apply, including the prohibition of deceptive practices in connection with collective investment schemes (investment funds). Investors should be in a position to make well-founded investment decisions, including in the cases of products declared as "sustainable". FINMA published guidelines in November 2021, laying out the information that Swiss funds must provide in the documentation when they are declared as sustainable. When applying for authorisation, those funds are required to supply additional information as to the sustainability goals being pursued, their implementation and the expected impacts. This enables FINMA to better assess whether there is deception and to take appropriate action.[2]

Despite this, FINMA has only limited leeway for effectively preventing and combatting greenwashing. There are no specific sustainability-related transparency obligations and effective control parameters on which basis to take measures. Only additional regulatory measures would provide FINMA with the tools it needs to be able to combat greenwashing more comprehensively and effectively.

Let us not forget the Federal Council’s announcement, in late 2021, of its intention to make Switzerland a market leader in sustainable financing. At the time it urged financial market players to strive for enhanced transparency by introducing comparable and meaningful climate compatibility indicators that would enable investors to classify and select investments according to their impacts on the climate. In that context, the Council unveiled “Swiss Climate Scores" in late June, and recommended their use by financial market players purely on a voluntary basis.

By the end of 2022, the Swiss Federal Departments of Finance and the Environment (FDF and DETEC) are expected to produce a report on the implementation of these recommendations by the financial sector and – in conjunction with the FINMA – to table concrete suggestions on changes that are needed to financial market legislation in order to avoid greenwashing.

Considering the significance of the Swiss financial centre, the Federal Council would be well advised to bring forward an ambitious and future-ready regulatory framework which, at the very least, incorporates the relevant EU regulations. This could curb greenwashing practices so that financial flows from Switzerland could be credibly and measurably redirected – for the benefit of the climate and sustainable development.

 

[1]In 2020, "sustainable" funds grew by 50 per cent and their cumulative volume surpassed that of "unsustainable" funds for the first time.

[2]Among the practices covered by the term greenwashing, FINMA mentions collective investment schemes that purport to be sustainable when in reality no sustainable investment policy or strategy is being pursued, or collective investment schemes that use terms like "impact" or "carbon-neutral" to suggest sustainability, in the absence of any means of measuring or verifying the resulting impacts or savings.

Press release

On the side of warmongers and crisis profiteers

17.05.2022, Finance and tax policy

After the USA, Switzerland is the world’s most opaque financial centre. This is clear from the new Financial Secrecy Index of the Tax Justice Network (TJN).

Dominik Gross
On the side of warmongers and crisis profiteers

© Tax Justice Network

After the USA, Switzerland is the world’s most opaque financial centre. This is clear from the new Financial Secrecy Index of the Tax Justice Network (TJN). Our country is marking time in the fight against international tax evasion, money laundering and corruption – this is currently proving to be an obstacle in the search for sanctioned funds belonging to Russian oligarchs. Greater transparency is urgently needed.

According to the calculations published today by the TJN, Switzerland is home to one of the financial centres most attractive to tax evaders, money launderers, financiers of terrorism, or corrupt politicians. For not only do Swiss banks manage more foreign assets than anywhere else in the world – currently more than 3,600 billion francs according to the Swiss Bankers Association – but despite all the reforms of the past 10 years, the Swiss financial centre remains one of the world’s least transparent.

As regards the Russian war of aggression in Ukraine, this is problematic for two reasons, says Dominik Gross, Financial Policy Expert at Alliance Sud, Switzerland’s centre of excellence for international cooperation and development policy: “First, Switzerland lacks the laws under which the authorities could undertake an active search for much of the sanctioned assets belonging to Russian oligarchs. TJN studies make this clear.” According to the State Secretariat for Economic Affairs (SECO), just 6.3 billion francs in Russian assets are currently frozen in Switzerland, the banks having again released more than one billion since April. And this even though, according to the Bankers Association, there are some 150-200 billion in Russian assets in Switzerland.

In addition, because Switzerland still undertakes no automatic exchange of information on financial accounts (AEOI) with many developing countries, tax evaders from non-AEOI countries still have virtually nothing to fear with Swiss banks. Gross continues: “They hide money here from the tax authorities in their home countries, where it is urgently needed for coping with the food crisis triggered by the war in Ukraine.”

Parliament must act

Despite the pressing need for action, the Federal Council remains inactive. The National Council and Council of States could soon rectify that, however:

Further information:
Dominik Gross, Financial Policy Expert at Alliance Sud: +41 78 838 40 79

 

Article, Global

Mozambique's gas curse

20.06.2023, Finance and tax policy

Even at the height of the climate crisis, gas mega-projects are being mounted in Mozambique by oil majors, including TotalEnergies, in which the Swiss National Bank holds a stake. These projects are fuelling conflicts while not benefiting the people.

Laurent Matile
Laurent Matile

Expert on Enterprises and Development

Mozambique's gas curse

Downed power lines in Macomia, northern Mozambique, after Cyclone Kenneth in 2019.
© Tommy Trenchard/Panos Pictures

Following the discovery of immense natural gas reserves in 2010 off the coast of Cabo Delgado province in northern Mozambique, gas and oil multinationals have launched massive liquefied natural gas (LNG) projects. These projects figure in the OECD report on "Private finance mobilised by official development finance interventions". They include deep-sea mining (at a record depth of 2000m!), a submarine pipeline and processing plants on land, as well as an LNG export terminal. Two mega-projects (Rovuma LNG and Coral South FLNG Project) constitute a joint venture between the USA's ExxonMobil, Italy's ENI and China's government-owned CNPC. The principal shareholder and operator of the Mozambique LNG project is the France's TotalEnergies corporation, in conjunction with Mitsui (Japan) and Mozambican, Indian and Thai investors. It should be recalled that the Swiss National Bank (SNB) currently holds shares in TotalEnergies worth about 620 million USD.

Public-private funding on a gigantic scale

The total amount invested in LNG projects in Mozambique is estimated at some USD 60 billion, or almost four times Mozambique's GDP. According to the African Development Bank (ADB) – one of the project's public donors together with export credit agencies (ECA) mainly in the United States and the United Kingdom – these projects represent the largest foreign direct investment (FDI) to date and the largest project funding in Africa. They should make Mozambique the world's third largest LNG supplier, and contribute more than USD 67 billion directly to Mozambique's GDP. The projects will provide gas for export to Europe and Asia (mainly India and China), but also aims to supply LNG for the industrial development of the country and the southern African region.

Besides Mozambique, Nigeria, Egypt, Algeria as well as Senegal and Mauritania are also striving to increase their LNG exports, especially to Europe. LNG advocates deem this energy source to be indispensable to the energy transition, as it produces 50 per cent less CO2 emissions than coal-based energy. Conversely, in its report titled Net Zero by 2050 published in May 2021, the International Energy Agency (IEA) called for an immediate end to investment in fossil energy production, so that worldwide energy-related CO2 emissions can be brought to net zero by 2050, thereby limiting global warming to 1.5°C.

Islamist uprising and natural resource curse

The province of Cabo Delgado is one of the country's poorest regions. Besides being hit by cyclones and floods that have further compounded poverty and food insecurity, the region is also gripped by an uprising against the Mozambican Government, stemming from various factors, but which may also be linked to the extraction of the region's natural resources.  Armed groups, some with links to terrorist organisations such as Islamic State, have launched violent attacks on local communities, forces of law and order, and on gas infrastructure. By UN estimates, more than 700,000 people have been displaced in the region since the uprising began.

The international community has provided humanitarian assistance for the people affected. In February last, the President of the Swiss Confederation, Alain Berset, together with his Mozambican counterpart, Felipe Jacinto Nyusi, visited a refugee camp and  SDC projects in the province. Mozambique has been a priority country for Swiss cooperation since 1979.

The EU has in turn stepped up its financial support, among other things, for Rwandan defence forces stationed in Mozambique to ensure that the gas projects can come on stream as quickly as possible, thereby reducing EU dependence on Russian gas.

The Swiss National Bank: shareholder of TotalEnergies

According to its own information, the Swiss National Bank (SNB) currently holds shares worth almost USD 620 million in TotalEnergies capital. Besides its operations in Mozambique, TotalEnergies plans to build a 1400-km pipeline called EACOP, which will run through Tanzania and Uganda and will jeopardise the livelihoods of thousands of people and also the environment. At its recent annual meeting, the Swiss Climate Alliance, of which Alliance Sud is a member, joined other NGOs in the "SNB Coalition" in calling for all fossil assets to be divested and for SNB investment, monetary and foreign exchange policies to be aligned with the aims of the Paris Climate Agreement. Tanzanian NGO representatives have called on the SNB management to divest its stake in TotalEnergies immediately.

Global Logo

global

The Alliance Sud magazine analyses and comments on Switzerland's foreign and development policies. "global" is published four times a year (in german and french) and can be subscribed to free of charge.

Article, Global

Aligning investments with climate targets

06.12.2022, Finance and tax policy

In signing the Paris Climate Agreement in 2015, the international community pledged, among other things, to orient financial flows towards a low-carbon economy. Switzerland is moving along that path – but in very small steps.

Laurent Matile
Laurent Matile

Expert on Enterprises and Development

Aligning investments with climate targets

© House of Switzerland

Although it is sometimes forgotten, the Paris Agreement does commit States – besides reducing their CO2 emissions and adapting to the impacts of climate change – also to directing financial flows towards low greenhouse gas and climate-resilient development. Countries are therefore expected to take appropriate steps to ensure that financial market participants use their financing and investments to help redirect capital flows towards concrete solutions for mitigating climate change and adapting to the changing climate. Simply put, “investments should be oriented towards the goals of the Paris Agreement”.

Given its global importance – 24 per cent of cross-border asset management takes place in Switzerland – the Swiss financial sector would be ideally placed to play a key role as a catalyst for driving this reorientation. But while there is general agreement on the goal, opinions diverge considerably as to the means of achieving it.

EU taxonomy: “sustainability” at last defined

In June 2020, the EU adopted the Taxonomy Regulation, which forms the backbone of its Action Plan on Financing Sustainable Growth. One of its primary aims is to identify and promote investments in “sustainable” activities that are consistent with the EU goal of climate neutrality by 2050. To this end, the Regulation creates a classification (taxonomy) of corporate economic activities, based on their potential to contribute to the EU’s six environmental objectives. At various levels, it encompasses more than 70 activities from the fields of energy, transport, forestry and construction; these account for more than 90 per cent of EU greenhouse gas emissions. Large companies are required to report their activities that are aligned with the taxonomy and to indicate the share of overall activity that they represent. This information should enable financial market participants to prioritize the funding of projects and assets that can be shown to contribute most to reductions in the direction of climate neutrality. As of 2023, large companies will also be required to disclose the degree to which their activities are aligned with the taxonomy. Financial institutions will also be subject to the same requirement starting in 2024.

For an activity to be classified as “green” under the taxonomy, it must make a vital contribution to at least one of the EU’s six environmental objectives, without significantly counteracting the other five, and must respect guarantees relating to human and labour rights. The criteria for identifying environmentally friendly activities are set by the European Commission. An initial legal instrument focused on climate has been in force since January 2022, and addresses activities that contribute to achieving the first two objectives of the taxonomy (climate change mitigation and adaptation). The criteria for the other four goals (environmental pollution, water, circular economy and biodiversity) are to be set by the end of the year. Further social criteria and governance -related aspects are also to be determined.

And in Switzerland: between competitiveness and/or sustainability

In its 2020 Report on sustainability in Switzerland’s financial sector, the Federal Council recognized the importance of a uniform system of classification for sustainable activities (taxonomy), primarily “because comparable information means transparency for clients, insured parties, investors and the public”. However, in the wake of opposition from the industry, and invoking the sacrosanct principle of subsidiarity with regard to State action, it opted to pursue a voluntary and hence a non-regulatory approach. In June 2022, it adopted the Swiss Climate Scores (SCS), which were drawn up by a working group comprising industry players, representatives of the federal administration, academia and NGOs. Their aim is to provide institutional or private investors with “reliable and comparable” information regarding the degree to which their financial investments are compatible with international climate goals. The Federal Council recommends that all Swiss financial market participants should apply the Swiss Climate Scores to financial investments and client portfolios “wherever this makes sense”.

Is the approach credible?

To be worthy of their status as “best practices” in the realm of climate transparency, the SCS are to be reviewed at regular intervals and, “if necessary”, adapted to reflect the latest insights. The Federal Department of Finance (FDF) and the Federal Department of the Environment, Transport, Energy and Communications (DETEC) have been tasked with reviewing the progress made, by the end of 2023, towards the adoption of the “Swiss Climate Scores” by Swiss financial market players – as previously noted, on a voluntary basis. It will be useful, in this context, to compare such progress with that achieved in the EU through the application of the taxonomy and other regulatory measures.

At present, the SCS raise several questions. Will they actually be implemented in the financial sector? Will mere pressure by clients on financial institutions suffice to ensure that they are implemented? Or can a sufficiently substantial climate incentive be created only by introducing further regulations to ensure that investments are consistent with the goals of the Paris Agreement to which Switzerland has signed up? To be continued in 2023.

Die 5 + 1 Indikatoren der Swiss Climate Scores

Die SCS umfassen fünf obligatorische und einen optionalen Indikator. Drei Indikatoren beziehen sich auf den aktuellen Stand der Portfolios (Treibhausgasemissionen; Exposition gegenüber fossilen Brennstoffen; glaubwürdiger Klimadialog mit Unternehmen). Zwei Indikatoren sind «zukunftsorientiert» (verifizierte Bekenntnisse zu Netto-Null; Management auf Richtung Netto-Null). Der Indikator «globales Erwärmungspotenzial», also das Ausmass der globalen Erwärmung, wenn die Weltwirtschaft mit der gleichen Ambition wie die Portfolio-Unternehmen handeln würde, bleibt vorerst optional.

Global Logo

global

The Alliance Sud magazine analyses and comments on Switzerland's foreign and development policies. "global" is published four times a year (in german and french) and can be subscribed to free of charge.

Sustainable finance

Sustainable finance

Alliance Sud works towards ensuring that the Swiss financial centre contributes consistently and effectively towards realising the UN Sustainable Development Goals and that its business activities are aligned with the objectives of the Paris Climate Agreement.

What it is about >

What it is about

The Paris Climate Agreement requires countries to gear financial flows towards development with low greenhouse gas emissions and which is resilient to climate change. Similar goals are also in place internationally in the realm of biodiversity.

Switzerland is the world's leading centre for crossborder asset management, and has an insurance industry that covers global risks. It therefore bears prime responsibility for ensuring that financial flows are aligned with the goals of sustainable development and climate protection, and do not support greenwashing. 

Subscribe to Sustainable finance