The CO2 Act: a sustainable investment?

Did you discuss climate policy at your last meeting with your bank advisor ? Probably not. I know I didn’t. Instead, you’ll have taken a detailed look at your portfolio and gauged how it had performed since your last meeting – taking stock the conventional way. At the end of the day, you want your assets to be invested on the basis of data and facts so as to minimise the cost in terms of losses and missed profits.

You’ll also have discussed your long-term strategy for wealth accumulation, always with a focus on the current situation and possible future scenarios. You’ll have considered whether your planning still meets your current needs, and, last but not least, you’ll have had some decisions to make. You’re the customer, after all, and it’s your decisions that set the course for successful growth in your assets over the long term.

Climate policy and sustainable wealth accumulation aren’t so different

You might be surprised by how similar the success factors for sustainable wealth accumulation and sustainable climate policy are. Your experience of discussions with your bank advisorwill thus stand you in good stead in the upcoming referendum on the revised CO2 Act.

Our country’s climate policy is geared to ensuring that it remains a good home for future generations, just as many investors are interested in leaving their children a good inheritance. The facts are clear: carbon dioxide emissions caused by humans are endangering this goal. It’s right and proper, therefore, that we work to reduce these emissions, and we’re certainly not alone. The signing of the Paris Agreement in 2015 represented a firm commitment by the international community.

But does Switzerland’s strategy promise long-term success? As with wealth accumulation, it’s vital to make forward-looking investments based on the information available today. Scientists believe that climate change has the potential to cause enormous damage. This means that reducing carbon dioxide emissions will bring economic benefits through lower future costs. The revised CO2 Act aims to ensure that polluters pay more going forward. The taxes it imposes are intended to promote renewable energy and building renovations, among other things. These investments will lead to greater prosperity for our country as a whole by mitigating the cost of climate change.

Will additional CO2 taxes be detrimental to my financial investments?

The new CO2 taxes will reduce the earnings potential of companies that emit large quantities of greenhouse gases. However, this should only be a short-term effect as companies can adapt their business models to more climate-friendly production and thereby reduce their CO2 tax burden. The CO2 Act will promote the development of new technologies and offer new investment opportunities. On top of this, we’re seeing returns on sustainable investments that match or even beat those of conventional investments. The CO2 Act thus offers far more opportunities than risks for investors who have realised which way the wind’s blowing.

How will the CO2 Act affect the financial sector?

The revised CO2 act takes up the Paris Agreement’s goal of making financial flows sustainable, but financial flows merely reflect the emissions of the economy as a whole. It therefore makes economic sense to internalise the cost of pollution and reward environmentally friendly activities. This is exactly what the revised CO2 Act aims to do.

It will also require FINMA and the SNB to compile periodic reports on microprudential and macroprudential financial climate risks in much the same way that your relationship manager provides you with reports on the risks contained in your portfolio. The banking industry supports this approach, which will increase transparency in risk management and enhance the financial centre’s stability.

At the same time, the politicians acknowledge the industry’s sustainability efforts and have explicitly refrained from including prohibitive clauses in the Act, instead choosing to promote voluntary action in this area with a view to strengthening the competitiveness of the Swiss financial centre in this fast-growing and internationally hard-fought field of business.

Voting “Yes” is good for the climate and for the financial centre

Sound analysis and long-term strategy are essential prerequisites for achieving success in wealth accumulation and climate policy alike. It’s my view that the revised CO2 Act is a good – perhaps even necessary – “investment opportunity”. The various compensation mechanisms make the short-term investments bearable, while the medium-term benefits in terms of our contribution to the global push to reduce carbon dioxide emissions are potentially very high. As investors with a long-term horizon, we should have the will to vote “Yes” to the CO2 Act on June 13.