FINANCE
Financial district in Zurich
Photo: amd / focusTerra
The financial sector plays a central role in the transition to net zero, as it has an impact on all sectors of the economy and significantly influences how capital flows are directed and investments are prioritised. Banks, insurance companies and institutional investors such as pension funds therefore have a crucial responsibility in financing the energy transition and other climate protection solutions.
Climate change causes huge economic costs: by 2049, these are estimated to be at least six times higher than the costs of preventing climate change. It is more effective to invest this money in innovative and sustainable solutions than to spend it on damage control afterwards.
HOW CAN THE FINANCIAL SECTOR CONTRIBUTE TO NET ZERO?
- Financial actors withdraw their investments from the fossil fuel industry and invest in renewable energies instead.
- Portfolio managers follow international guidelines that have been proven to ensure that climate protection is taken into account in investments.
- Financial institutions systematically factor climate risks into their risk analyses in order to identify and mitigate them at an early stage. This keeps the financial system stable – even in a changing environment and economy.
- Financial products for private investors transparently disclose emission reduction strategies so that climate-friendly investments are easily identifiable and investments can be made specifically for the climate.
- Internalisation of external costs: the costs of emissions are integrated into the financial system, e.g., through CO₂ taxes on climate-damaging behaviour, which are incorporated into product prices.
NECESSARY SOCIAL AND POLITICAL MEASURES
- Sustainability standards and quality seals create transparency regarding the climate impact of investments, for example through instruments such as the EU Taxonomy, which defines green and sustainable economic activities.
- Financial incentives support long-term climate goals, and penalties make climate-damaging practices more expensive.
- Climate-damaging industries, such as the the aviation or steel industries, no longer receive subsidies.
ADDITIONAL BENEFITS FOR SOCIETY
- Funds are withdrawn from climate-damaging companies and invested in climate-friendly companies.
- Investments in climate-friendly companies are more attractive because they are based on sustainable technologies.
- Pension funds minimise their risks by no longer investing in ‘old’ technologies (e.g., coal power plants).
HOW CAN YOU CONTRIBUTE?
- Choose financial products and services that prioritise climate protection.
- Invest in renewable energies and energy-efficient solutions. Stop investing in fossil fuels.
- Ask your pension fund to invest your savings in a climate-friendly way.
ROLE OF FINANCE IN NET ZERO
Graphic: PIK Potsdam Institute for Climate Impact Research (modif.)
SUSTAINABILITY STANDARDS (ISSB)
The International Sustainability Standards Board defines global standards for sustainability and climate in finance. The aim is to ensure that investors have the necessary information about a company’s sustainability risks and opportunities.
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PACTA CLIMATE TEST
Every two years, the Federal Office for the Environment and the State Secretariat for International Financial Matters use the internationally recognised PACTA method to analyse the progress made by the Swiss financial market in achieving sustainability goals.
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SUSTAINABLE INVESTING
The financial market is increasingly offering investment products that focus not only on returns but also on ethical, social and environmental factors. These funds invest in companies, projects and countries that meet sustainability standards.
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FINANCIAL CENTRE INITIATIVE
The Swiss financial centre is a global heavyweight. The billions that are managed or lent here can have a significant impact. The Financial Centre Initiative, launched in 2024, aims to ensure that money is invested sustainably.
Photo: Finanzplatz-Initiative (modif.)
CLIMATE-FRIENDLY CRYPTOCURRENCIES
Traditional cryptocurrencies consume a great deal of electricity. New alternatives aim to reduce energy consumption – for example, through processes that require less computing power or by using solar power for the computers that operate the system.
Photo: Adobe Stock