Climate change is forcing financial institutions to change the way they think and behave. This could have a significant impact on their balance sheet .
Yves Mirabaud, chairman of the Swiss Private Banking Association, said in his last speech in June: “Bankers are no longer simply financial professionals, but also appraisers of the impact of investment on the environment and society. Soon after his speech, the Swiss Financial Market Supervisory Authority (FINMA) issued a policy requiring banks and insurance companies to "fully inform the public of their [climate] risks" in a transparent manner. Swiss financial institution companies can usually conduct self-regulation, but the Swiss Financial Market Supervisory Authority hopes that financial institutions will fully disclose their accounting methods.
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| Financial institutions must be vigilant, otherwise they may lose everything because of imprudent environmental and social decisions. Keystone / Rank Augstein |
Climate change brings multiple risks to the financial sector. The insurance industry is obviously affected by natural disasters such as hurricanes or floods. If banks provide funding for pollution projects, they may also face reputational risks or litigation. This is affecting the way bankers work and how they deal with risks.
Traditional indicators for evaluating investment risks and returns are gradually being adjusted to incorporate environmental and social factors. Financial institutions have even begun to monitor the companies in which they invest.
Mirabeau believes that if a bank simply sells its shares in polluting companies, these shares will only be bought by other profit-seeking investors. He said: “As a creditor or shareholder, it is best to put pressure on the company to adopt a greener business model.”
Is the change happening?
Social movement groups often ask Swiss banks to be responsible for funding companies and projects that cause environmental damage.
Related problem projects include deforestation in the Amazon basin and other parts of the world Norilsk-Temel Energy Company Siberian Oil Spill And the controversial Dakota pipeline project in the United States (English)
Switzerland announces the creation of the world's leading sustainable financial center .However, the above-mentioned practical behavior is incompatible with this goal.
The Climate-Related Financial Information Disclosure Working Group (TCFD) stated that changes in investor sentiment and business activities may also expose financial markets to "changes in the supply and demand of certain goods, products and services." Traditionally safe investments, such as energy project investments, may become no longer safe in the future.
The Climate-Related Financial Information Disclosure Working Group was established by the Financial Stability Board to help financial institutions adjust their governance, strategy, risk management, and goal setting in accordance with increasingly serious climate issues. The Swiss financial sector adopted the TCFD standard when assessing climate-related risks.
Martin Raab, a board member of the fintech startup Global Green Xchange, said that the Swiss Financial Market Supervisory Authority recently required banks to fully disclose their climate risks, which may not be easy to implement. He told swissinfo.ch: “Many elements of climate risk are still esoteric and unknown. If flooding occurs in Italy or part of the Dutch coastline disappears, what will be the substantial impact on the bank’s balance sheet? The summer drought will affect Swiss borrowers. What is the impact of credit quality? There are no quantifiable correct answers."
The Swiss branch of the World Wide Fund for Nature (WWF) welcomed the new regulatory requirements, but expressed its "regret" that the Swiss Financial Market Supervisory Authority was unwilling to implement binding reporting standards. "If there are no clear guidelines, the data disclosed will vary from institution to institution. The comparability and final assessment of the disclosed climate-related financial risks will be severely affected."
The non-governmental environmental protection organization also called on the Swiss Financial Market Supervisory Authority to extend reporting obligations to all financial institutions in Switzerland, not just to the largest financial institutions.
The Swiss Bankers Association (SBA) told Swissinfo that it believes that small banks will be included in the climate risk reporting system of the Swiss Financial Market Supervisory Authority in due course. Currently, the reporting system covers five major banks, of which only PostFinance has not yet used the TCFD model to report climate risks. However, the Swiss Banking Association still expects that banks will need to make some "extra efforts" to fully meet the requirements of the Swiss Financial Market Supervisory Authority.
Martin Nerlinger, an assistant professor at the School of Finance at the University of St. Gallen, said that increasing the work content of the bank’s compliance department may lead to increased costs.
He said: “This process is cost-intensive. Banks need to invest in training professionals, establishing or expanding processes and IT systems.” He added that the Swiss Financial Market Supervisory Authority may also need to strengthen its own capabilities to better evaluate A large amount of new data submitted by financial institutions.
On the other hand, according to institutions such as the OECD and the World Bank, finance is a necessary means to achieve the goals of the Paris climate agreement, and requires trillions of dollars in capital investment every year until at least 2030.
Rebuilding infrastructure, issuing green bonds and funds, and supporting alternative energy innovation can all be profitable.
Daniele Stoffel, the Swiss Secretary of State in charge of international financial affairs, said at a meeting hosted by the Swiss Private Banking Association this month: There is evidence that green investment is less volatile than traditional investment. , Can provide investors with greater certainty.
As Zeno Staub, CEO of Vontobel Bank said, making money by applying environmental, social and corporate governance (ESG) standards to every investment decision is what makes sustainable finance successful. The only strategy to win".
Source : Swissinfo.ch
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