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Switzerland, sustainable energy and the challenges of net zero

Switzerland, sustainable energy and the challenges of net zero

The COP26 summit saw world leaders agree on a much-needed supplement to the Paris Agreement in the form of the Glasgow Climate Pact, in which over 140 countries have now pledged to achieve net zero. The Pact also includes commitments to limit the use of unabated coal, deliver climate finance for developing countries, and review emissions plans in 2022 to try and keep the goal of limiting global warming to 1.5 °C within reach.

“Although I was only able to spend a day at COP26, the experience will have a lasting impact,” said Daniela Stoffel, Switzerland’s State Secretary for International Finance, who we spoke to in Glasgow. “What I appreciated most were the talks in the corridors and the community coming together again. This alone was a goal in itself.”

Switzerland is among the countries that had net-zero pledges in place before COP26 and which, in early 2021, published its roadmap to net zero. The document, titled ‘Switzerland’s Long-Term Climate Strategy’, included ten strategic principles, such as effectively using all energy sources in a way that accounts for their optimal usage potential and an openness to all kinds of new and existing technologies. In many respects, then, Switzerland is in a good place relative to other countries when it comes to net zero. In others, though, challenges remain.

Switzerland is among the countries that had net-zero pledges in place before COP26 and which, in early 2021, published its roadmap to net zero

Slowly moving ahead

For instance, carbon pricing is central to Switzerland’s net-zero strategy, and the country already has one of the highest carbon taxes in the world1. However, there are still significant exemptions in place, including that of transportation fuels, which, unlike combustion fuels more generally, remain untaxed. And, earlier this year, Swiss voters rejected a change to the law that would have closed some of these key carbon price gaps.

Still, Stoffel remains optimistic about the future of Swiss carbon pricing. “Switzerland has committed to achieving net zero by 2050, and we’re doing our best to fund the transition,” Stoffel continued. “We are working hard on our carbon price. We are a direct democracy, so we have to go to the people for approval on any revisions to Swiss law. But we have high hopes that we can further develop the instruments we need to achieve net zero.”

Switzerland has committed to achieving net zero by 2050, and we’re doing our best to fund the transition

Historically, Switzerland has also managed to get ahead of the net-zero game thanks to its geography, as Stoffel explained. “Switzerland is a small, landlocked country. We have no natural resources. So, from the very beginning, we’ve had to protect our environment and be inventive with our solutions.” As a result of this necessity-borne invention, the Swiss energy sector is already dominated by carbon-free electricity from hydro and nuclear power.

Unfortunately, though, between a 2017 decision taken by voters to phase out nuclear power and insufficient investment in renewables, the net-zero hill Switzerland might have been in a position to climb has become more mountainous in recent years. That said, there is as yet no firm timeline on the decommissioning of Switzerland’s nuclear plants, which could buy time for the country to make progress on its commitment to renewables—a challenge that, according to Switzerland’s Environment Minister Simonetta Sommaruga, can be addressed by two draft bills which, if passed, would ensure the promotion of renewables until at least 2030.

The role of private capital

At Lombard Odier, we understand that net zero requires a fundamental economic transition that investors will play a vital role in facilitating. That is why we have already developed, and will continue to improve, tools that enable us to invest with a rigorous net-zero mindset and, in turn, help our clients take advantage of the opportunities and mitigate the risks of the transition.

…we have already developed, and will continue to improve, tools that enable us to invest with a rigorous net-zero mindset and, in turn, help our clients take advantage of the opportunities and mitigate the risks of the transition

Still, the entire financial sector will need to throw its weight behind the transition for it to be a success—and an industry standard for measuring a company’s current & future emissions and, therefore, its climate impact, remains elusive. Here, COP26 delivered a beacon of hope when the International Financial Reporting Standards Foundation (IFRS) announced that it would be forming a new International Sustainability Standards Board (ISSB) that will standardise sustainability reporting and governance in 37 countries. “We have very high hopes that the ISFB can produce a globally accepted emissions reporting standard,” said Stoffel. “This is one of the most important announcements to have happened at COP26, because it has the potential to deliver the transparency and standards we need to achieve net zero.”

The Building Bridges summit, which will take place in Geneva this November/December, also represents an important opportunity to make progress towards solving Switzerland’s net-zero challenges. In particular, the event aims to create cross-sector partnerships that can solve the supply-demand mismatch and divert much-needed capital toward more sustainable energy solutions.

The Building Bridges summit…also represents an important opportunity to make progress towards solving Switzerland’s net-zero challenges

Such initiatives will go a long way toward alleviating investor scepticism around sustainability which, despite growing understanding of the need for change, remains widespread: according to a recent survey by broker HYCM, for instance, over half of UK-based investors still say that sustainable investing isn’t a priority, at least for now2. Since such sentiments are driven in large part by valid concerns around greenwashing, measures like the ISSB will be vital if investors are to fulfil their essential role in the transition.

“To people who don’t believe that sustainability is an important topic, I’d say that this isn’t about green for green’s sake,” said Stoffel. “Sustainability is about how we create our best future on this planet. As such, we don’t need to talk about sustainable finance any more. It is finance, and it is sustainable. We have to reinvent how we do business and, in turn, how we do financing, in order to be able to live on this planet a bit longer.”

 

1 Hintermann, B. and Zarkovic, M. (2020) ‘Carbon Pricing in Switzerland: A Fusion of Taxes, Command-and-Control, and Permit Markets’, ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 18, no. 01, pp. 35–41. https://www.ifo.de/DocDL/ifo-dice-2020-1-Hintermann-Zarkovic-Carbon-Pricing-in-Switzerland-A-Fusion-of-Taxes,Command-and-Control,and-Permit-Markets-spring.pdf
2 Willems, M. (2021) 'Exclusive: Most investors could not care less about ESG and sustainability', City A.M. https://www.cityam.com/exclusive-cop26-impact-close-to-zero-as-most-city-investors-could-not-care-less-about-esg-and-sustainability/

Important information

This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.

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