Banks as key drivers of transition to net zero
The 28th conference of the United Nations Framework Convention on Climate Change (UNFCCC) – better known as the Conference of the Parties or COP28 for short – began on 30 November and runs until 12 December. A wide range of people have come together here in Dubai to work out ways of combating and adjusting to climate change. From the Swiss financial centre’s perspective, this is an opportunity to play an active role in the discussions and in developing solutions.
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Climate change is a global challenge that requires a great deal of investment worldwide. According to an analysis by the Glasgow Financial Alliance for Net Zero (GFANZ), some USD 32 trillion must be spent globally by 2030 to achieve the Paris Agreement goals set at COP21 back in 2015. That equates to USD 2.2 trillion a year. This is the only way to reach net-zero greenhouse gas emissions by 2050.
The questions of how this money will be raised and how existing investment hurdles can be overcome were addressed on Finance Day last Monday. Such questions are of huge importance and interest to Switzerland’s entire financial community, especially as the Federal Council aims to position our country as a leading hub for sustainable finance. Answering them can not only bring us closer to this goal, it can also open up new business opportunities for Swiss financial institutions that get involved in innovative and effective approaches.
Financial institutions have a vital role to play in funding the transition to net zero. On one hand, they can provide direct net-zero investments, i.e. support and enable decarbonisation projects themselves. On the other, as intermediaries, they can help their clients to steer their finance flows, advise them and empower them to make informed decisions about sustainability. This includes creating transparency and explaining possible alternatives.
However, the funding needed to achieve the Paris Agreement goals and thus combat climate change cannot be supplied by the financial markets alone, and even public money will fall far short of the task. To make matters worse, conventional investment channels are encountering difficulties, particularly in countries with high carbon dioxide emissions. Investments in these countries typically carry higher levels of risk and are often illiquid, making them less appealing. We must therefore find ways to combine investments from the public and private sectors. At the same time, a funding loop must be created that links investors seeking to fund the transition with investees whose work is genuinely reducing emissions.
Finding long-term solutions to climate change and exploiting their full potential will thus require a shared understanding of how to close funding gaps and build bridges between various different actors. To this end, those actors – be they governments, international organisations, private companies or NGOs – have to take their role seriously and actively engage in discussions. The Swiss financial delegation at COP28 agreed that Switzerland, being an international financial centre, is especially well positioned to make a substantial contribution here and that work on this must press ahead with great urgency.