Switzerland raised CHF 776m with its first green bond and there will be further annual issuances to meet a green spending target of CHF 4.5bn. The country is also establishing a voluntary framework of climate scores.
- Switzerland has issued its first green bond raising CHF 766 million.
- It comes alongside a voluntary framework of climate scores to assess climate risk in investment portfolios.
- The country is planning total green expenditure of CHF 4.5 billion as it plans to become leader in sustainable finance.
Switzerland has issued its first green bond to fund domestic green projects. Proceeds will be primarily directed at combating climate change and investing in biodiversity across six green categories. Switzerland has established a net zero goal by 2050, which it says is aligned with the terms of the Paris Agreement.
The country is also establishing a voluntary framework for investors to score the climate alignment of their portfolios. It hopes these will improve financial disclosure transparency on climate risks and aid climate action aligned investment decision making.
Green bond framework highlights categories of priority
In developing its green bond framework, Switzerland identified climate change and biodiversity loss as major challenges to investing. Stemming from these challenges, a further six categories have been identified as eligible for investment using proceeds of the current, and future, green bonds.
These categories include clean transportation, agriculture, forestry, and biodiversity, green buildings and energy efficiency, renewable energy, international cooperation and research, innovation and awareness raising. The parliament has approved a total green expenditure budget of CHF 4.5 billion to help it achieve its sustainability goals.
Renewable energy specifics missing from current budget
Even though the deployment of renewable energy has been identified by the IEA as a key step in any net zero transition by 2050, the Swiss green bond framework did not allocate a budget for renewable energy in 2021 and 2022.
One reason may be opposition from lobby groups. Proposals to set up solar farms on pastures are being met with resistance from Mountain Wilderness Switzerland, which says that they should be installed on existing rooftops and building facades, rather than on virgin sites.
Using rooftops and facades could generate 67 TWh of solar-powered electricity annually by 2050. This is based on Switzerland’s Federal Energy Office estimates, and is almost double its own 34 TWh goal.
It seems likely that the disagreement will be resolved, as Switzerland grapples with its energy security and dependence on Russian gas. The Swiss parliament has also called for a doubling in the amount of renewable energy produced by 2035.
Voluntary framework open to incorporating international best practice
The country is establishing a framework of best practices for investors, called the Swiss Climate Scores, to assess climate risk in their portfolios. The framework is intended to provide transparency on disclosures in areas such as greenhouse gas emissions, exposure to fossil fuels, credible climate stewardship, global warming potential and transition to net zero.
The federal office has based the indicators that make up Swiss Climate Scores on international standards. The intention is to regularly review the scores against the standards being put out by the Task Force on Climate-related Financial Disclosures (TCFD), and portfolio alignment metrics such as those published by the Glasgow Financial Alliance for Net Zero (GFANZ). In this way, the scores will be able to reflect industry best practice.
The use of the Swiss Climate Scores is currently voluntary. As such, they are intended to help investors make better decisions via enhanced transparency, but could also help reduce the risk of mislabelling investments. The federal office believes its climate scores create forward-looking transparency, as opposed to the EU taxonomy, which provides a static view of the existing sustainability of economic activities.
The EU taxonomy is also intended to help investors make investment decisions about climate risk, and will become a mandatory requirement by 2024. It is also the basis for the EU green bond standard, allowing only green projects aligned with the taxonomy to be eligible for use of green bond proceeds.
The EU issued its first NextGenerationEU green bond in October 2021, after establishing its green bond framework. Based on internationally accepted green bond principles published by the International Capital Market Association (ICMA), establishing a green bond framework is considered best practice prior to issuing green bonds.
Switzerland bids to become sustainable finance leader
The Swiss capital market has seen a total green bond issuance of CHF 11 billion. The Federal Council of Switzerland decided to issue green confederation bonds in November 2021, as a way to encourage the private sector to issue green bonds as well.
The Canton of Geneva was the first to issue green municipal bonds in 2017, but the main issuers since then have been banks and insurers. Green bonds make up 1.9% of the Swiss capital market, which is above the global average of 1.5%, but well below the EU’s 3%.
The federal council’s ambition is to make Switzerland an international leader in sustainable financial services. Switzerland and its financial markets have committed to transitioning to net zero by 2050.
Switzerland plans to update its climate scores regularly to ensure they align with wider climate transparency best practice. It also plans to monitor the voluntary adherence to these guidelines by the Swiss financial industry by the end of 2023.