The Swiss Federal Council recently decided to further develop the Swiss Climate Scores, which it had first launched in June 2022. With these scores, Switzerland had become the first country to establish a set of transparency criteria for climate-friendly investments. The Federal Council recommends that Swiss financial market players create comparable and meaningful transparency on climate alignment for all financial investments and client portfolios and, where appropriate, apply the Swiss Climate Scores.
The Swiss Climate Scores, the use of which is voluntary, establish best-practice transparency on the Paris-alignment of financial investments to foster investment decisions that contribute to reaching the climate goals. These Scores contain six indicators that not only reflect where global companies in the financial product or portfolio currently stand, but also show where these companies are headed in relation to global climate goals (net zero target by 2050): The Scores have the following six indicators built-in:
- Greenhouse Gas Emissions
- Exposure to Fossil Fuel Activities
- Global Warming Alignment
- Verified Commitments to Net-Zero
- Credible Climate Stewardship
- Management to Net-Zero
Each indicator has a minimum score that reflects the level of ambition and performance of an investment product or portfolio. The higher the score, the more aligned it is with the Paris Agreement. The initial adopters of the Swiss Climate Scores were smaller, specialized market players who applied the scores to some of their products and services. Globalance became the first Swiss bank in Spring 2023 to publish the scores for all its assets under management, including investment funds, while UBS published the Swiss Climate Score reports for ~60 equity and bond funds domiciled in Switzerland in November 2023.
More recently, in December 2023, the Swiss Federal Council updated some aspects of the Swiss Climate Scores to facilitate their implementation by the industry and increase their comprehensibility for investors. The updates include optional questions on the investment objective in relation to climate, with the expectation for financial institutions to state and justify whether a financial product is climate-friendly or contributes to mitigating climate change. Additionally, the exposure to renewable energies will now be reported alongside the exposure to fossil fuels. The updated Swiss Climate Scores will be applicable from January 01, 2025. According to a recent market study by the industry association Swiss Sustainable Finance, a third of the asset managers surveyed expressed their intention to apply the Swiss Climate Scores in the near future. As more financial institutions adopt these scores, Switzerland continues to solidify its position as a leader in sustainable financial services. The State Secretariat for International Finance (SIF) unit of the Federal Department of Finance (FDF) plans to conduct its first comprehensive study on the status of voluntary uptake by Swiss financial market players in 2024.
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Keywords: Europe, Switzerland, Banking, ESG, Climate Change Risk, Swiss Climate Scores, Securities, Net-Zero Transition, Sustainable Finance, Paris Agreement, Swiss Federal Council
Hasan leads Moody’s Analytics ESG methodology development. He is expert on carbon transition, nature related risks and is a guest lecturer at ESSEC Business school on sustainable finance.
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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