Both climate change and the decisions taken at the upcoming climate negotiations in Paris will carry significant impacts for the Swiss financial industry. A recently published study, commissioned by the Swiss Federal Office for the Environment (FOEN), provides a groundbreaking overview of the financial risks for the Swiss equity fund market and pension funds. Carried out by South Pole Group and CSSP, the two companies ran the first climate impact assessment of the Swiss financial marketplace and with that the first study of its kind globally.
Present at the launch event of the study, Simone Ruiz-Vergote, Head of Climate Advisory & Projects at Allianz further highlighted the importance of such data: "The 2° degree pathways have been fleshed out but not in terms of what it means on a sector-level for investors."
The study covered three dimensions of climate change for 80% of the equity fund market, banks and pension plans covering over CHF 500 bn assets as well as for the most common indexes. The analysis also unveiled the exposure to fossil fuel reserves of the different investments, the exposure to greenhouse gas emissions from direct operations, and the potential order of magnitude of the financial impact on stock prices once relevant climate change legislation would kick in - as it already has in countries like France:
"The new French legislation will necessitate disclosure from investors," stated Robin Edme, Senior Advisor on Responsible Finance at the French Ministry of Ecology, Sustainable development and Energy, also attending the launch event.
Going forward, investors should focus on investing in companies that are on track to transition to a low-carbon economy, in line with the 2° degree pathway. In practice this translates into ensuring that their underlying investments are reducing their greenhouse gas emissions and that they are applying robust climate strategies throughout their investment processes. In the future, working towards more climate-smart investing can also be done via index investors. The next generation of climate smart indexes, currently under development, will offer actionable information to adequately reflect climate risks and opportunities into asset allocation.