Digital library on sustainable finance
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Swiss financial institutions manage around USD 10 bn of worldwide investments for development, equivalent to almost 30% of the total global volume (status: 30 September 2015). The study "Swiss Investments for a Better World" identifies microfinance and investments for development as a rapidly expanding area of Switzerland’s financial industry, with an impressive growth rate of 18.4% over the past year. The financial sector is therefore building a bridge between economically disadvantaged regions seeking access to financial solutions and investors aiming for a market return on their long-term investments.
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Swiss investments for a better world - The first market survey on investments for development - EN
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In the scenario of a late and sudden transition to a low-carbon economy, the financial sector can be heavily exposed to environmental risks. Methodologies are being developed to measure the carbon intensity of investments, and the industry is reflecting on the importance of carbon stress tests. This policy brief proposes a Finance and Sustainability Risk Forum in which European financial supervision can share best practices and coordinate their input to the Financial Stability Board.
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Financial risks and opportunities in the time of climate change - EN
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Due to the accelerated growth in technology-enabled innovation, the authors aim to consider the impact on the risk profile of the financial system. This report further describes the wave of innovation at hand and how it leads to opportunities for enhancing the stability of the financial system, and concludes with a set of recommendations on how to improve it.
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This report explores how businesses can utilize debt as a tool to restore, rehabilitate, and conserve the environment while creating financial value. The report explains how ecosystem services are relevant to companies, examines the state of markets for carbon, water, and biodiversity credits, discusses the suitability of debt financing for companies at various stages and sizes, and suggests recommendations for businesses and investors who want to take advantage of opportunities to invest in conservation finance.
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Within this updated report, chapter 5.2.3 identifies instruments that can be used to achieve the Green Economy vision. Instrument 6c specifically cites the incorporation of ecological and sustainability considerations within the financial market policy.
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The first Swiss Sustainable Finance study, ’Swiss Investments for a Better World’, offers a detailed overview of the structure and dynamics of the Swiss market for investments in development. The report was produced in partnership with the Center for Microfinance of the University of Zurich and Symbiotics.
The survey of asset managers, banks and institutional investors made it possible to analyse the asset allocation (incl. the structure of the portfolios), the investment characteristics (currencies, portfolio quality, regional allocation and socio-economic and environmental indicators), as well as the financial returns (incl. risk and liquidity).
The report also presents four case studies showcasing innovative approaches to the financing of education, agriculture, and SMEs in different sectors in developing countries.
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Swiss investments for a better world - The first market survey on investments for development - EN
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Investors and financial regulators are increasingly aware of climate-change risks. So far, most of the attention has fallen on whether controls on carbon emissions will strand the assets of fossil-fuel companies. However, it is no less important to ask, what might be the impact of climate change itself on asset values? In this paper, the authors use a leading integrated assessment model to estimate the impact of climate change on the present market value of global financial assets. The authors find that the expected ‘climate value at risk’ (climate VaR) of global financial assets today is 1.8% along a business-as-usual emissions path. Further estimates also constitute a substantial write-down in the fundamental value of financial assets.
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‘Climate value at risk’ of global financial assets (pdf 474.7 kB)Summary
WWF, together with Responsible Investment charity ShareAction, carried out a survey of the 20 largest Swiss pension funds. It analysed how far pension funds invest their beneficiaries’ money sustainably and whether they transparently provide them with information. Although all pension funds are in some way engaged in the topic of responsible investing, there is still room for growth to catch up to international best practice.
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In this study the authors take a closer look at extending the already well-researched approach to increasing the efficiency of fossil fuel usage to water usage. They find that resource scarcity is a complex theme to consider in investments as demand for various resources cannot be looked at individually considering the demand for resources is correlated. Results also show that carbon- and resource-efficient companies may outperform less efficient companies. Lastly, the report finds that a focus on efficiency can help companies mitigate risks on the level of regulation, resource depletion and reputation.
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Resource Efficiency: A Case Study in Carbon and Water Use - EN
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At the request of the G20, the Financial Stability Board (FSB) engaged the private and public sector to review how the financial sector can incorporate climate-related issues in financial reporting. The TCFD undertakes a coordinated assessment of what constitutes efficient and effective disclosure and desings a set of recommendations for voluntary company financial disclosures of climate-related risks that are responsive to the needs of lenders, insureres, investors, and other users. This report sets out the scope and high-level objectives together with a set of fundamental principles of disclosure. Thereby, forming the framework for the second report (to be published end of 2016) which will describe the specific recommendations and guidelines.
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Phase I Report of the Task Force on Climate-Related Financial Disclosures - EN
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This paper discusses the impact of internalizing environmental costs onto a firm's balance sheet and the consequent risks this creates for commercial banks. Two industries, thermal power and cement production, were selected for stress testing. A range of high, medium and low stress scenarios were used to assess the impact on the financial performance and credit rating. This bank-led approach is the first of its kind in China and provides a foundation for the discussions on the theoretical framework and analytical methodologies.
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Impact of Environmental Factors on Credit Risk of Commercial Banks - EN
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This report present actions under way at the European level and in selected Member States to align the rules governing the financial system with environmental sustainability. The authors stress thereby five policy priorities: capital reallocation, enhancing frameworks for risk management, clarify core responsibilities of financial institutions, improve reporting and disclosure and the need of a strategic reset, seeking to link previously unconnected initiatives.
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Building a Sustainable Financial System in the European Union - EN
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This study aims to examine how institutional investors across the world are beginning to consider the Sustainable Development Goals within investment decisions, in addition to their future plans related to the SDGs. A survey was sent to about 500 institutional investors globally of which 52 responded. The report highlights the belief that the SDG's will serve to enhance returns, mitigate risk, strengthen reputation and help achieve investment objectives of the different institutions.
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This issue is the second in a two-part COP21 special and focuses on the major outcomes of COP21 for institutional investors. It also looks at leading current investment responses to climate change from asset owners.
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ESG Magazine: Can investors lead the fight against climate change? - EN
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The Guide’s objective is to provide the reader with a clear understanding of the field of impact investment, and with the practically applicable knowledge and tools necessary for the development and implementation of an impact investment program.
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Abstract: True ESG integration means ESG factors are systematically fed into the valuation models and investment decisions of analysts and PMs. However, most ESG approaches fail to do this. As a result, sustainable investing is much less an application success than a marketing success. Our Value Driver Adjustment (VDA) approach is different: it ties into traditional valuation approaches by linking ESG issues to value drivers via their impact on business models and competitive positions. For equities, the initial results find that the average target price impact of ESG factors is 5% overall, and 10% conditional on non-zero adjustments; dispersion is wide as target price changes ranged from -23% to 71%. The investment team has experienced a pay-off in terms of more in-depth analysis of companies, a clearer view on risk and better informed decisions.
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The Equator Principles (EPs) are a voluntary code of conduct and a risk management framework for determining, assessing and managing environmental and social risks in projects, such as energy or infrastructure projects. This report combines a literature analysis, interviews with project financiers and stakeholders and an analysis of EP signatories' reports to determine how these actors are implementing the EPs. The report finds that the EPs do not create significant changes in project financing institutions and therefore enforcement mechanisms should be implemented.
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The Equator Principles - Do they make banks more sustainable? - EN
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The COP 21 Paris Agreement emphasizes the necessity of transitioning towards a low-carbon economy with a shift towards more renewable energies. The report outlines the danger associated with a late and sudden shift, where the adaptation occurs abruptly, whereas an early start in implementing the pledges could ensure a soft landing. The risks would mainly be associated with the macro impact of a sudden change in energy use, revaluation of carbon-intensive assets and a rise in the incidence of natural catastrophes. To ensure financial stability, this report suggests to enhance disclosure of the carbon intensity of non-financial firms, making stress-testing of related exposures of financial firms possible.
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Too late, too sudden: Transition to a low-carbon economy and systemic risk - EN
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This article outlines potential implications of climate change for the management of financial risks. It identifies insurance as a mechanism to reduce the economic disruption of disaster events. In addition, it outlines policy approaches to aid the penetration of disaster insurance coverage and the capacity of insurance markets to absorb disaster risks. Recommendations for improving the financial management of disaster risks are also identified.
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Financial Instruments for Managing Disaster Risks related to Climate Change - EN
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The momentum established by the COP 21 Paris Agreement presents revenue risks and opportunities, as capital investment shifts from high to low carbon energy infrastructure and solutions. Financial intermediaries will and are already exposed to these trends, and abrupt changes could influence the overall financial stability. In order to reduce uncertainty over the energy transition and become masters of their own destiny, this reports summarizes the issues at hand and sets out some thoughts about a potential response.
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With an estimated value of approximately USD 50 trillion, real estate assets consume about 40% of the world's energy and contribute to up to 30% of the annual GHG emissions. Practitioners note that the effective integration of ESG measures is hindered by excessively large amounts of available information or uncertainty about relevant actions. This report suggests a framework setting out measures and actions needed to support the integration of ESG and climate risks into the business of investment and management, overcoming the barriers. Aiming thereby to transform aspirational measures into default practices for all stakeholders in the property sector by suggesting tailor-made step-by-step frameworks for individual target audiences (e.g. asset owners, bond and debt investors).
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This report builds on the previous CS study "Conservation Finance - Moving beyond donor funding toward an investor-driven approach". Since then the field has developed rapidly. The objective of this report is to identify financial product structures that have the potential to establish finance in mainstream investment markets, reaching an estimated medium-term potential of USD 200-400bn. However, there are four central challenges currently inhibiting the conservation finance market's growth: little commercial support for early-stage projects, substantial search and transaction costs for identification and implementation of conservation projects, high perceived risk, and the lack of the scalability and replicability of current projects. The authors propose three shifts that would allow to address these challenges.
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Conservation Finance From Niche to Mainstream: The Building of an Institutional Asset Class - EN
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For this report about 750 experts researched 29 separate global risks. The one with the greatest potential impact was found to be failure of climate change mitigation and adaptation. It's the first time since the report was published in 2006, that an environmental risk has topped the ranking. The report highlights the importance of the interconnections among the risks, suggesting that a small number of key risks wield great influence. An example is climate change exacerbating water crises, resulting in conflicts and forced migration. The report concludes that knowledge about risks (likelihood and potential impact) and their interconnections is fundamental for leaders, helping them to prioritize areas for action.
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More Walls, More Warming, Less Water: A World at Risk in 2016 - EN
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This report by the Credit Suisse Research Institute explores several aspects of the connection between sound governance and improved business performance. Amongst others the experts identify specific company types and sectors, in which governance can serve as a particularly robust investment strategy instrument. The report concludes that a governance-oriented investment strategy works best in distinct sectors and periods of time.
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This UBS report looked at middle-class consumption in 215 cities around the world and compared it to the level of climate-change risk in those cities. The report highlights the economic risks (i.e covering uninsured losses, shifts in consumption patterns) resulting from the interconnection between socio-economic structures and high exposure to climate change of cities.
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