The SNB misleads Switzerland's financial centre on climate change - The SNB's climate risk management is totally inadequate
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The SNB misleads
Switzerland’s financial centre
on climate change
The SNB’s climate risk management
is totally inadequate
April 21, 2020
© Artisans de la transition, Fribourg, April 2020 www.artisansdelatransition.org This report is partly based on a research by ISS-Ethix www.issgovernance.com The German version is published in cooperation with Klima Allianz www.klima-allianz.ch The French version prevails German and English translation: Alliance climatique/Klima Allianz Graficdesign : www.ventdouest.ch Photo Credits: Front page: Felgueiras lighthouse, Portugal johnnorth/istock ; p.6, Ennio-Leanza/Keystone ; p.15, Pascal Städeli/Presse Klima-Demo ; p.18, Branco de Lang/Keystone, p.20. robh/istock
Key Messages
1. A
fter a long period of inaction on climate change, 4. T
he SNB lags far behind central banks in Europe
the Swiss National Bank (SNB) joined the Net- in understanding and taking into account the
work of Central Banks and Supervisors for the seriousness of climate risks. Meeting under the
Greening of the Financial System in April 2019. aegis of the Basel-based Bank for International
In November, the SNB presented its views on the Settlements, a group of eminent economists
risks posed by climate change. provides a good explanation of the true nature of
climate risks: “The accumulation of atmospheric
CO2 above certain thresholds can lead to irrevers-
2. The redundancy of the bank data centres, the ible impacts, which means that the biophysical
insurance safety net, the country’s location causes of the crisis will then be difficult if not
far from the sea coast and an economy with impossible to remove”, they write. “While in an
very little heavy industry lead the SNB to ordinary crisis it is possible [for central banks] to
judge moderate the risks associated with bail out distressed banks, it will be much more
climate change for the Swiss economy and difficult with economies made unsustainable by
financial sector. climate change.”
3. This deeply flawed assessment misleads the 5. C
limate risks are subjecting democracies to a
Swiss financial centre and exposes it to very choice reminiscent of their face-to-face encounter
serious consequences. Between 2016 and 2019, with the Covid-19 pandemic: should they reorient
Credit Suisse lent USD 25 billion to the global their economies to stem CO2 emissions as quickly
fossil fuel industry, the equivalent to 56,8 % of as possible by agreeing to destroy whole swathes
the bank’s own funds. In 2019, UBS increased its of activities that depend on fossil fuels, or allow
annual investment in coal nine-fold. Three quar- their current trajectory to continue and cause
ters of Switzerland’s 60 largest pension funds physical damage so enormous that they will
have no climate policy at all. Ambitious climate destroy the economy? If it wants to stand a chance
policies combined with market developments of being able to manage future shocks in order to
towards less carbon-intensive energy to meet the save the economy, the SNB must join the voices
targets of the Paris climate agreement will lead urgently calling for a “flattening of the climate risk
to a massive depreciation of these assets. curve” to avoid the collapse of economies.
ArtisansdelaTransition 3
6. Some central banks are moving in that direction. 8. T
his report therefore makes
The European Central Bank launched a strategic five recommendations to the SNB:
review in early 2020 to include climate change
as a founding element of monetary policy. – Develop a vision and strategy for climate
The Dutch Central Bank is carrying out climate risk management in line with the state
stress tests to see what would happen to banks, of knowledge on global warming and on the role
insurance companies and pension funds if a of central banks.
robust carbon tax – USD 100/tonne – were intro-
duced. The Banks of France and England have – Communicate clearly on climate risk
planned to carry out such tests in 2020 and 2021 management.
respectively.
– Properly manage the climate risks of its invest-
ment portfolio.
7. T
he SNB’s investment policy is clear evidence
of its lack of foresight. The association Artisans- – Ensure that all financial actors understand
delaTransition has analysed the SNB’s invest- climate risks.
ments in the fossil fuel industry in its portfolio
of CHF 101 billion as at 31 December 2019. – Study the possibility of participating in a coor-
According to calculations by the service provider dination, within the Confederation, of economic
ISS-Ethix, the SNB is now responsible for 43.3 and financial players on climate change in order
million tonnes of CO2eq emissions per year. This is to respect the Paris agreement.
almost as much as Switzerland’s total emissions
(47 million tonnes of CO2eq in 2017). Only 20% of
the SNB’s portfolio is invested in companies that
have drawn up a plan to adapt to the 2°C objec-
tive. This portfolio supports a warming trajectory
of 4 to 6°C by 2100, which will make the Earth
largely uninhabitable by the turn of the century.
4 ArtisansdelaTransition
Susana Jourdan and Jacques Mirenowicz*
The SNB misleads Switzerland’s
financial centre on climate change
The SNB’s climate risk management
is totally inadequate
Abstract
* Susana Jourdan This report analyses the climate risk While the SNB should be a lighthouse
and Jacques Mirenowicz management policy of the Swiss Na- for all Swiss economic and financial
are Codirectors of the Association
tional Bank (SNB). The findings are players, this is extremely worrying.
Artisans de la transition
www.artisansdelatransition.org clear: the SNB has not adequately The signals it sends out contribute to
assessed the colossal and poten- misleading the Swiss financial centre
tially irreversible systemic risk that rather than enlightening it about the
climate change poses to the Swiss extreme seriousness and urgency of
financial system and the economy as the climate danger. Drawing on the
a whole. This clear lack of foresight progress made by European central
is reflected in particular in its invest- banks in acknowledging the enor-
ment choices. mous economic and financial impacts
of global warming that have already
For the third time, the association begun, this report makes recommen-
ArtisansdelaTransition has analysed dations for the SNB to drop its wait-
the investments in the fossil fuel in- and-see attitude, to break with the
dustry in the SNB’s portfolio of CHF passive management of its portfolio
101 billion (around 66% of its equity and to adopt, as soon as possible and
portfolio) as at 31 December 2019. in coordination with politicians, a cli-
These investments remain broadly mate risk management system that
unchanged since 2016. The SNB’s is designed to mitigate risks as far
passive investment strategy leads it as possible. In doing so, it can be the
to buy a basket of stocks that is rep- lighthouse that the Swiss economic
resentative of the international stock system in general, and the Swiss
markets. Only the size of its portfolio financial industry in particular, need
changes. According to calculations to avoid disaster. ●
by the provider ISS-Ethix, the SNB
is now responsible for 43.3 million
tonnes of CO2eq emissions per year.
This is almost as much as the whole
of Switzerland (47 million tonnes of
CO2eq in 2017) (FOEN, 2019).
ArtisansdelaTransition 5
A gross misinterpretation
of climate change
The first economic sector that A risk considered “moderate”. Supervisory Authority (Finma) in
will be affected by climate Political pressure is growing for April 2019. Her presentation thus
change is agriculture. By 2018,
the SNB to take greater account of addresses the two main types of
many alpine wells were dried
up. The army had to refuel global warming, but the bank says risks due to climate change for its
them by helicopter. Here, on very little about this phenomenon. core tasks: physical risks and risks
the Oberbaetruns mountain In November 2019, however, Andrea associated with the transition to a
pasture near Schänis in Canton
Maechler, a member of the SNB Gov- low-carbon economy.
St. Gallen, a mountain farmer
observes the lack of water erning Board, presented the SNB’s
necessary for the survival of perspective on climate risks at the “Physical risks include the direct
his herd. Money Market Event in Geneva material effects of climate change on
(Maechler and Moser, 2019). A very income and production capacity. For
informative presentation. example, severe storms can damage
factories and transport infrastruc-
Andrea Maechler takes up the ana- ture and disrupt value chains that
lytical framework of the Network of are essential to international trade,”
Central Banks and Supervisors for says Andrea Maechler, who, after
the Greening of the Financial System, outlining a picture of various possi-
which the SNB joined at the same ble physical risks, offers reassurance:
time as the Swiss Financial Market “ In Switzerland, however, the prac-
6 ArtisansdelaTransition
tice of mandatory redundancy (e.g. mate risks due to their geographic Netherlands. Nevertheless, the fact
multiple data centres with different location and economic structure. I remains that the country is among
risk profiles) should ensure business am thinking in particular of countries the most threatened in the world,
continuity even in the event of major that are partially below sea level as it is warming twice as fast as
natural disasters.” (e.g. the Netherlands), those that are the average (NCCS, 2018). The cli-
highly exposed to extreme weather mate change scenario for Switzer-
This leads Andrea Maechler to be events (e.g. droughts, storms, floods) land published at the end of 2018
very optimistic: “Given our country’s and economies in which carbon-in- presents the main expected effects:
climate risk profile and the fact that tensive industries (e.g. steel and more heat, fewer glaciers, less snow,
the bulk of these risks is insured, a cement) are strongly represented.” less precipitation. The sector most
climate-related natural disaster is affected will be agriculture. Then
unlikely to threaten the stability of This leads her to state: “According to comes tourism.
the entire banking system in Swit- our assessment, the overall threat
zerland, even if some individual insti- posed by climate risks that are capa- It is very easy to imagine how these
tutions could be affected.” ble of affecting Switzerland’s eco- developments could lead to inflation,
nomic and financial stability appears one of the SNB’s benchmarks: in
Andrea Maechler then explains the to be moderate at present.” [empha- the event of a dry and hot summer
risks associated with the transition. sis added]. - which will be the norm in 2060 if
“They include the economic costs and the world warms above 1.5°C (NCCS,
benefits of adjusting to the regula- This analysis and its conclusions 2018) - agricultural production is
tions and public policies needed to reveal a profound misunderstand- expected to fall sharply in Switzer-
decarbonize the economy.” And while ing of the impacts of climate change land and neighbouring countries and
she details the ways in which these on Switzerland: physical and tran- agricultural prices will rise. Similarly,
regulations and policies, such as the sition-related risks will have major droughts are expected to cause diffi-
introduction of a carbon tax, could effects on the SNB’s two core tasks culties for dams, which will push up
affect the value of assets in the raw of ensuring price stability in the electricity prices.
materials sector, the auto industry or medium term and contributing to the
heavy industry, she says: stability of the Swiss financial system There are also many possible sce-
as a whole. narios affecting the exchange rate,
“Each central bank tackles these another variable at the heart of the
challenges in its own way, depend- SNB’s core business. In the event
ing on the profile of the economy in Physical hazards of a natural disaster, for example, a
question and the institutional frame- It is true that Switzerland is not on wave of panic in the markets would
work within which it operates. Coun- the front line in the face of rising lead to a sharp appreciation of the
tries are affected differently by cli- water levels, like Bangladesh or the Swiss franc.
ArtisansdelaTransition 7But we don’t need to look into the emissions tests for new cars between 2016 and 2019 alone,
future to see the effects of climate that comply with new international the bank lent USD 6.3 billion to
change on the economy: they are standards. companies that operate coal mines
already at work. “The time horizon or coal-fired power plants (RAN et al.,
over which climate change impacts Benoît Cœuré believes that climate 2020). As coal shifts to less carbon-
the economy has become shorter, change affects the ability of central intensive energy, what will become
which justifies looking at how mone- banks to conduct monetary policy of these assets?
tary policy is [already] affected,” says precisely because it is not easy to
Benoît Cœuré, member of the Exec- identify the phenomena that are Over the past four years, Credit Suis
utive Board of the European Central already affecting it. se has provided USD 75 billion of
Bank (ECB) (Cœuré, 2018). financing to the global fossil fuel in-
Transition risks dustry, about one-third of which was
According to this eminent econo- The SNB considers the risks associ- in the form of loans. These loans are
mist, it is the role of central banks ated with the transition in Switzer- equivalent to 56.8 % of the equity
to understand the effects of climate land to be low, as the country has no capital of the bank (CHF 44 billion at
change on the economy and to adapt heavy industry. Although there are the end of 2019). Over the same pe-
monetary policy accordingly. For no mines, coal-fired power plants, riod, UBS has financed the fossil fuel
example, the price of oil remained smelters or steelworks in Switzer- industry to the tune of USD 35 billion.
high in Germany while it fell on land, these industries are neverthe-
the world market in the autumn of less an integral part of the Swiss What will happen to these two banks
2018. “One hypothesis is that the financial system. What will happen if these assets are impaired - which
hot summer ... caused water levels to the CHF 7 trillion in assets that is something we must fervently hope
in German rivers to drop to levels the Swiss financial centre manages if for – due to the introduction of new
that allowed barges to carry only half the world, in order to implement the standards, bonus-malus systems, or
their normal capacity, creating bottle- Paris Accord, orchestrates a genuine even simply as a result of expected
necks in supply.” transition to low-carbon economies? technological advances? In 2019,
despite the US federal government’s
Benoît Cœuré cites other examples: In December 2019, under fire from an support for coal, its use in the United
in the United States, the temporary intense “name and shame” campaign States fell by 15% (International
drop in first-quarter economic activ- (LaRevueDurable, 2020b) in a context Energy Agency, 2020).
ity observed for several years could where there is increasing pressure
be the result of very snowy winters; for all banks, pension funds, insurers The risks of transition weigh on other
the slowdown in the German econ- and reinsurers to break away from major sectors, including the automo-
omy in the third quarter of 2018 coal, Credit Suisse announced that tive industry: several countries will
resulted from the deployment of it would not invest in this fuel. But soon ban sales of new combustion
8 ArtisansdelaTransitionengine cars: Norway in 2025, the ity of the banking system as a whole
United Kingdom probably in 2035, is low […] not least because of the
the Netherlands, France, Sweden, guidelines that technical facilities
Ireland and even China by 2040 at should be distributed
the latest. to different locations.” A central banker
Communication that guides This communication
has to be careful
financial players towards the is meant to reassure, about the signals
wrong choices but in truth it mis-
he sends
“A central banker has to be careful leads the Swiss finan-
about the signals he sends, because cial centre and directs
the financial markets and the ana- it towards the wrong
lysts who observe him draw conclu- choices. The two big
sions from these in taking actions Swiss banks, Credit Suisse and UBS,
and moving their funds,” observes are among the world’s largest pro-
Christine Lagarde, President of the viders of funds to the global fossil
ECB (France 2, 2020). It can even be fuel industry. The former is the larg-
argued that a central bank’s public est provider of funds for coal mining
voice is its main tool. In the man- after the Chinese banks. In 2019, the
agement of the Covid-19 pandemic, latter increased its investments in
an unfortunate phrase uttered by this sector by a factor of nine com-
Lagarde panicked the markets and pared to its average from 2016 to
she had to issue a clarification to 2018 (RAN, 2020).
calm nerves (Albert, 2020).
Monitoring of the sixty largest Swiss
On climate change, the SNB’s pension funds shows that 75% of
message is unchanging: nothing to them have no climate policy at all
report, everything is fine. Its Pres- (Klima-Allianz, 2020).
ident Thomas Jordan hardly ever
speaks out on the subject. Vice- And of course, this misinterpretation
President Fritz Zurbrügg stated at of the situation on the climate front
a press conference on 12 Decem- misleads the SNB itself, as evidenced
ber 2019: “According to our current by the third valuation of its equity
assessment, the likelihood of climate portfolio conducted by Artisansdela-
change risks threatening the stabil- Transition. ●
ArtisansdelaTransition 9The SNB equity portfolio
is still on a warming trajectory
of +4°C to +6°C
At the end of 2019, the SNB’s balance sheet total was
CHF 861 billion. Its foreign currency investments
amounted to CHF 794 bn, or 92% of this huge balance US Dollars
sheet. The SNB had invested these reserves as follows: 86%
Pounds Sterling
6%
Government
bonds 3% Canadian Dollars
68% 5%
Other currencies
12% Corporate
bonds
20% ArtisansdelaTransition then asked the company ISS-
Ethix to analyze this portfolio. Its study reveals a 10.5%
Equities reduction from 48.4 to 43.3% Mtonnes of CO2eq emis-
sions generated by this portfolio compared to the pre-
vious report by ArtisansdelaTransition (2018). The main
reason for this decrease is a decline in the amount of in-
The SNB’s equity portfolio amounted to CHF 158 billion, vestments in the fossil fuel industry, whose share of the
invested in shares of 6,700 companies from more than portfolio under analysis fell from 7.7% to 5.7%.
40 countries, representing 95% of the world’s market
capitalisation (Maechler and Moser, 2019). However, At first glance, it’s a very good record. Is the SNB, despite
most of its assets were invested in dollars on the New its poor assessment of climate risks, divesting from the
York Stock Exchange. fossil fuel industry? A closer analysis of the data sug-
gests that this is not the case.
As the SNB is very discreet about its investments, Arti
sansdelaTransition asked the Amsterdam-based spe-
cialist firm Profundo to piece together its equity port- Decline in investments in the fossil
folio. These specialists identified USD 104 billion of fuel industry
investments, or around CHF 101 billion, at the end of The SNB’s known investments in companies that ex-
December 2019. This portfolio represents about 66% of tract and sell conventional and non-conventional coal,
the SNB’s total equity portfolio. The composition of the gas and oil declined by USD 1.4 billion compared to the
portfolio provided by Profundo is as follows: previous analysis (ArtisansdelaTransition, 2018).
10 ArtisansdelaTransitionClimate risks in the SNB’s
known portfolio
30 September 31 December
as at 31 December 2019 2017 2019
Amount of the portfolio in USD billions 95,6 104
Percentage invested in extraction
and sale of coal, gas and oil 7,7 % 5,7 %
Amount invested in extraction
and sale of coal, gas and oil in USD billions 7,3 5,9
CO2eq emissions in millions of tonnes* 48,4 43,3
* Emissions over the entire life cycle of the good or service that the company provides Source : ISS-Ethix for
are considered. These are what specialists call Scopes 1, 2 and 3. Artisans de la transition, 2020.
In particular, the SNB reduced its investments in Exx- In early 2019, it filed for bankruptcy after estimating that
on by USD 400 million and in Chevron and Shell by USD it was facing USD 30 billion in damages from victims of
100 million. However, these declines appear to be the fires that ravaged California in 2017 and 2018. The fires
result of value reallocations imposed by its index man- were triggered by trees falling on the company’s pow-
agement rather than a proactive climate risk manage- er lines, which caused sparks to fly onto the surround-
ment strategy. For example, the SNB has increased its ing grass and ignite. The fires spread rapidly through the
investment in coal. The amounts invested are anecdotal forests because of the chronic drought that has plagued
in relation to the size of its portfolio, rising from USD California for many years.
3.2 million to USD 4.7 million, but they do show the lack
of a strategy to mitigate climate risks. However, to save money, Pacific Gas & Electric did not
maintain the forests around its power lines as it should
The SNB also probably lost money in an emblematic com- have done. Like too many economic and financial play-
pany. In 2017, it held USD 170 million worth of shares in ers, this company underestimated the climate risks that
Pacific Gas & Electric, owner of California’s largest power weighed its business model down.
company. It is now the first publicly traded company to
go bankrupt because of climate change (Carney, 2019).
ArtisansdelaTransition 11ISS-Ethix’s analysis shows that only 20% of the portfolio strategy (40% of the SNB’s portfolio value in total) are
is invested in companies that have a plan to meet the 2°C certain not to do so.
target (which was the standard until 2018, before the
IPCC report on the 1.5°C target was published). This com- Overall, the SNB portfolio supports a warming trajecto-
mitment does not guarantee that these companies will ry of 4 to 6°C by 2100, which will make the Earth largely
meet the target, but those with no strategy or a weak uninhabitable by that time.
Portfolio shares invested according to
companies’ climate strategies
No strategy Moderate strategy Commitment to align
with the 2°C goal
Weak Strategy Strong strategy
21 19 3 36 20
0 20 % 40 % 60 % 80 % 100 %
Source : ISS-Ethix for
Artisans de la transition,
2020.
SNB’s Portfolio Emission Pathway vs. Climate Scenarios
20
Millions of tons of CO 2e q
15
10
5
9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 1
201 202 202 202 202 202 203 203 203 203 203 204 204 204 204 205
SNB’s Portfolio (Scope 1) 2° C 4° C 6° C
12 ArtisansdelaTransitionA tragic lack of lucidity
Green Swans therefore much more difficult for
The Covid-19 pandemic offers the climate than for Covid-19.
democracies life and death choices:
should the economy be temporarily And this time horizon for climate
halted to stop the spread of the risks makes the task of assessing
virus in order to decongest hospi- them at their proper level all the
tals even if it severely destabilizes more difficult for central banks, since
the economy, or should the virus they are structured to scrutinize the
be allowed to spread and cause smallest details of economic condi-
tens of thousands of deaths? tions and the short-term outlook for
the economy (Carney, 2015).
Similarly, the climate risks associ-
ated with greenhouse gas emissions To help them deal with climate risks
are subjecting democracies to in the best possible way despite
choices of life and death: should this intrinsic difficulty, the most
they reorient their economies to in-depth analysis published to date
stem CO2 emissions as quickly as on the specific responsibility of
possible and destroy whole swathes central banks comes from a group
of activities that depend on fossil of five leading economists brought
fuels, or should they continue their together under the aegis of the
current trajectory and cause such Bank for International Settlements,
enormous physical damage that based in Basel. Their report makes
they will end up destroying the clear the true nature of climate risks
economy in any case? (Bolton et al., 2020):
Except that the virus responsible “The accumulation of atmospheric
for Covid-19 spreads and kills within CO2 beyond certain thresholds can
an extremely short time horizon, lead to irreversible impacts, which
while it takes decades for the dele- means that the biophysical causes
terious effects of climate change to of the crisis will then be difficult
unfold. So in Switzerland, despite if not impossible to remove,” they
temperatures rising year after year, write. “While in an ordinary crisis
it may still seem relatively remote. it is possible to bail out distressed
The choice facing democracies is banks, it will be much more difficult
ArtisansdelaTransition 13with economies made unsustainable to the five co-authors, who believe
future shocks to be able to save
by climate change.” that climate change may lead thesethe economy, they should call on
banks to have to take “a leap intopoliticians to urgently take eco-
An unexpected event with a the unknown”. [...] nomic measures, in consultation and
profound impact on the economy coordination with
is known, in financial circles, as a “If they stand still A good financial the banks, to flatten
black swan. To describe climate and wait for other the curve of climate
risks of unprecedented scale and government agencies
system needs risks.
complexity, these five economists to act, they are clear-sighted
refer to it as the Green Swan: exposing themselves economists and But just as a good
“This new type of systemic risk to the real risk of not health care system
involves ecological, geopolitical, being able to fulfill financiers needs doctors who
social and economic dynamics with their financial and are clear-sighted,
interactions that are fundamentally monetary stability who can see the
impossible to predict and that are mandates. Green Swan events threat coming at them and who
irreversibly transformed by the could force them to act as “saviours can anticipate and take the most
increasing concentration of green- of last resort” by buying up large appropriate protective measures in
house gases in the atmosphere. [...] amounts of devalued assets in time, a good financial system needs
“The complex chain reactions order to save the financial system economists and financiers who are
between degraded ecological once again. However, the biophysi- clear-sighted about how quickly
conditions and unpredictable social, cal foundations of such a crisis and large-scale climate perils are coming
economic and political responses its potentially irreversible impacts at them. The difference is that
are compounded by the risk of would soon reveal the limits of this doctors are, in principle, competent
tipping points: climate change wait-and-see strategy.” in health matters, which is not a
represents a potentially irreversible priori the case with economists on
risk of enormous complexity.” To return to the analogy with the climate matters. There is therefore
Covid-19 pandemic, central banks a particularly great risk that they
are in a situation similar to that of will prove unable to see the prob-
Flattening the risk curve the health system when some of its lem, however massive it may be,
This understanding of climate representatives sounded the alarm and to assess it properly, which is
change in line with the most to alert politicians: “We have to clearly the case with the current
credible scientific literature (Giec, flatten the progression curve of the management of the SNB.
2018; Masson-Delmotte and Mou- illness or we will be overwhelmed,”
fouma-Okia 2019; Ripple, 2019) is they warned. If central banks want To judge moderately, as it does, the
crucial for central banks, according to have any chance of managing overall climate risks threatening
14 ArtisansdelaTransitionA growing part of the population is calling for strong and significant measures from politicians to comply with the Paris Agreement. During the demonstration in the Bundesplatz on 28 September 2019, shortly before the federal elections, the number of demonstrators was estimated at 100,000. The SNB appears in the background. economic and financial stability in Climatologists constantly warn Switzerland illustrates the extreme of the extreme severity of the difficulty economists have in under- moment, but it is as if there were standing the significance of climate no receiver or watchtower to take change (LaRevueDurable, 2020a). account of it within Switzerland’s Instead of contributing to the col- political and economic institutions. lective anticipation of future shocks, Could the SNB be the institution instead of being a lighthouse that that is needed at the moment? helps the country and the world to The following recommendations avoid an unbearable accumulation are intended to provide food for of risks, the SNB looks more like thought. ● a watchman snoring in bed while a potentially devastating storm is brewing on the coast. ArtisansdelaTransition 15
Recommendations
1) Develop a vision and account. [...] At the very least [...]
a climate risk management macroeconomic models [that the
strategy ECB uses] should incorporate climate
risks in their risk assessment.
The SNB should set up an inter-
nal climate unit to develop a strat- [...] The ECB must also be able,
egy and propose tools for the seri- through reporting and transparency
ous measurement and management requirements, to determine whether
of climate risks for the Swiss econ- or not banks take climate change
omy and its financial sector. In par- into account when assessing risks
ticular, this unit should complement and when accepting financial prod-
traditional economic models with ucts. [...] It would also be perfectly
approaches that better account for legitimate and desirable for [...] the
the uncertain and non-linear charac- ECB to look at the way in which it
teristics of climate risks. conducts all these operations, pay-
ing particular attention to the imper-
In contrast to the SNB, the ECB seems atives of climate change.”
to be taking this route. At the begin-
ning of 2020, it launched an inter- That much is clear. However, we
nal strategic review in order to better have to wait and see what the con-
understand how new considerations clusions of the ECB’s strategic
such as employment and sustainabil- review, scheduled for the end of
ity can be relevant for the successful 2020, will recommend.
continuation of its mandate.
2) E
nsuring that all stakeholders
In recent months, its new president
understand climate risks
has made numerous statements
about the place of climate risk man- The SNB should ensure that all
agement in the ECB’s aggiorna- Swiss financial institutions and
mento, notably in its Committee asset managers correctly measure
on Economic and Monetary Affairs climate risks.
(2019): “[We will] include climate
change as a building block in deter- In cooperation with Finma, the SNB
mining where, when, how and to should contribute to measuring the
what extent the ECB can take it into climate risks of financial players and
16 ArtisansdelaTransitionmake these results public. This pro- 11 per cent of insurance assets (Ver- pean companies, the SNB can use
posal is included in the revision of meulen et al., 2018). it for listed companies wherever it
the CO2 Act and is to be debated by invests. It can employ its financial
the National Council during the sum- The Banque de France plans to carry clout by deciding to systematically
mer session. If the National Council out climatic stress tests in 2020 and support the ever-increasing num-
accepts it, both institutions will have the Bank of England in 2021. ber of shareholder resolutions call-
to equip themselves with state-of- ing on companies to publish their
the-art risk measurement and mon- Transparency of information climate strategies. In 2015, the SNB
itoring tools. In particular, several To help financial actors take climate decided to exercise its voting rights
central banks are using or planning risks into account, the European on aspects of good corporate gov-
to use stress tests. Commission plans to introduce four ernance. It can very well extend this
innovations by 2022 to steer finan- positive approach to climate risks.
Climatic stress tests cial flows towards a low-carbon
In 2018, the Bank of the Netherlands economy.
3) M
anage the climate risks of
subjected the country’s banks, insur-
its portfolio companies
ance companies and pension funds (i) A taxonomy of economic activi-
to climate stress tests. It has defined ties according to their ecological The SNB should of course start by
four possible scenarios that start sustainability. putting its own house in order and
with a shock: (1) implementation of a (ii) A quality standard for green reviewing its investment choices.
global carbon tax of USD 100/tonne, bonds. However, in order to manage its
(2) doubling the share of renewable (iii) Low-carbon benchmarks to portfolio of almost CHF 800 billion
energies in the energy mix, (3) both help asset managers create and (CHF 794 billion at 31 December
of those at once, and (4) political measure the performance of 2019), it has to deal with constraints
uncertainty that leads companies their portfolios. that, in its view, force it to settle for
and households to postpone their (iv) Guidelines to improve the quality a passive investment policy.
investments. and quantity of information that
companies should provide on the First of all, its assets must be ex
These shocks have macroeconomic climate impact of their activities. tremely liquid to enable it to inter-
impacts on growth, inflation, interest vene very quickly in the event that
rates, etc. The Bank of the Nether- The SNB and Finma should make a the Swiss franc exchange rate is
lands then estimated the vulnerabil- proposal to introduce these tools too high. Second, they must be
ity of each sector to these variations. in Switzerland and ensure that “as neutral as possible”: excluding
The result: losses range up to 3 per asset managers are aware of and certain securities would be tan-
cent of bank assets, 10 per cent of use them. And while this legisla- tamount to pursuing a structural
pension fund financial assets, and tion currently applies only to Euro- policy in favour of certain sectors
ArtisansdelaTransition 17All over the world, courts are being called upon to make judges see that the legislation is
unsatisfactory in the light of the climate threat. On 20 December 2019, the Supreme Court
of the Netherlands upheld the decision that the Dutch state has the obligation to rapidly
and significantly reduce the country’s greenhouse gas emissions.
rather than others. Moreover, con- which it invests to develop mean- the wealth of evidence to the con-
siderations of exchange rate risk ingful transition strategies for exit- trary, that climate risks to the Swiss
prevent them from behaving like ing the fossil fuel industry, requiring economic and financial system are
ordinary investors (Maechler and these companies to be transparent moderate. The scientific literature is
Moser, 2019). about their emissions: there are unambiguous: the situation is alarm-
already opportunities for the SNB to ing and time is running out to pro-
While these considerations are of be proactive on the climate without vide sufficient answers.
course legitimate, they cannot lead encroaching on the constraints of its
to the SNB ignoring the climate risks portfolio management, which would
5) Creating coordination on
in its strategic portfolio (Monin, benefit all financial players.
climate and finance
2020). However, this analysis high-
lights the very high exposure of its The Swiss financial centre has the
4) Enlighten financial actors
equity portfolio to these risks: means to contribute to flattening
40% of the portfolio reviewed (see Ultimately, the SNB must be the the global climate risk curve: Swit-
page 10) is invested in companies lighthouse that enlightens all Swiss zerland is the 70th largest emitter of
that have either no climate strategy financial players on the truth about direct greenhouse gas emissions and
or a weak strategy. climate risks. In order to help the the seventh largest emitter of green-
Swiss financial centre to see the light house gases if we take its financial
Stress testing its portfolio, using its on these risks, to grasp their urgency centre as a benchmark. It is there-
voting rights to require the boards and their full seriousness, it is urgent fore easy to understand: if the bil-
of directors of the companies in that the SNB stop claiming, despite lions of assets that it holds were to
18 ArtisansdelaTransitionbe managed with full consideration pension funds’ large housing stock hope that such a scenario, how-
of climate risks, the Swiss financial while benefiting from the subsidies ever extraordinary, can come about.
centre, by virtue of its size, would of the Federal Buildings Program! That is the hope that underlies this
become a formidable asset in curb- This is a good example of an oppor- report, because the times them-
ing the global rise of CO2 emissions. tunity that could be seized through selves are extraordinary. ●
proper coordination of public, fiscal
It is therefore crucial that the SNB and monetary policies.
quickly catches up in understanding
and managing climate risks in order It remains to be seen who should
to be that lighthouse that enlightens lead the coordination between these
and guides financial actors in Swit- policies and financial regulation in
zerland and beyond. Better coordi- Switzerland. Could this be the task
nation between fiscal, monetary and of the SNB? Whatever the answer
financial regulatory policies is also to this question, the SNB must in
essential for Switzerland to achieve any case be at the centre of this
an economically optimal ecological coordination.
transition at the lowest human cost.
ArtisansdelaTransition is well aware
In its financial stability report, the that the establishment of such coor-
SNB expresses concern about a pos- dination, in which the SNB would
sible real estate bubble in Switzer- become a reliable guide on climate
land. In a country where interest risks, would be an extraordinary sce-
rates are very low or even negative, nario, whereas the current position
pension funds are turning to real of the SNB reveals the immense dif-
estate as a means of securing their ficulty for many economic and polit-
capital returns. However, the SNB ical leaders of simply acknowledging
notes that “an increasing proportion the reality of the tremendous perils
of new mortgages in the residential that climate change entails.
property investment segment are
financing real estate in regions with Nevertheless, the world is moving,
a high vacancy rate” (SNB, 2019). the pressure is mounting and the
thinking within central banks is
What a waste to construct unneces- progressing. The repeated calls from
sary buildings when the low interest scientists and the voices of young
rate environment is ideal for consid- people asking the public and
ering the thermal renovation of politicians to heed these calls give
ArtisansdelaTransition 19La Californie (Etats-Unis), subit
depuis une dizaine d’années et de
manière exponentielle des incendies
de brousse et de fôrêts de plus en
plus dévastateurs et incontrôlables
(here the Tomas Fire taken from a
Santa Barbara beach )
In addition to biodiversity treasures, forest fires destroy huge carbon sinks. Amazonia, Australia, California,
Canada, Scandinavia, Portugal, Ukraine and even Siberia: devastating and uncontrollable fires have ravaged
huge areas around the world in recent years. Here in Montana, USA.
Why a report on the SNB at a time
when Switzerland is facing the Covid-19
pandemic?
ArtisansdelaTransition decided to publish this long- economy that are inflating the climate risk curve, which
awaited report in the midst of the Covid-19 pandemic must be flattened. Hence the eminent interest in calling
because the SNB will hold its General Meeting as sche- attention, in language accessible to all, to this acute pro-
duled on 24 April. And because the current acute health blem at this crucial time.
crisis should not blind the Swiss public to the continua-
tion of the much more serious chronic crisis that is affec- This report shows the importance of the SNB at the cen-
ting the climate and will wreak havoc on the living condi- ter of the Swiss and global financial industries, its mar-
tions of humans for centuries to come. ked delay in understanding climate risks compared to
other European central banks, in particular the ECB,
The forced temporary halt of an important part of the the risk this represents for the Swiss economy, and the
economy means that recovery plans will soon have to be positive and possibly decisive influence the SNB could
put in place, and these plans will have to take account have on Swiss economic dynamics if it were to change
of the climate and ecological situation. The SNB will its view of climate risks. ●
be called upon to help draw up these plans. It will pro-
bably not be able to help remove the components of the
20 ArtisansdelaTransitionConclusion
The fact that the SNB’s investments ensure that these mandates endure
are responsible for considerable in the difficult times ahead. In order
emissions is the tree that hides the for Switzerland to do its part in the
forest from its deeply flawed appre- objective of flattening the climate
ciation of the financial and monetary risk curve as much and as quickly as
risks associated with climate change. possible, a governmental coordina-
By underestimating the threat of tion of public, fiscal and monetary
climate change to the world in policies is necessary, in which the
general and to the Swiss economy SNB could assume a pivotal role. ●
and financial system in particular,
the SNB is strongly contributing
to blinding all Swiss economic and
financial players to the phenomenon.
Instead of remaining passive in the
face of the looming storm, it should
instead take on the salutary task of
keeping a watchful eye and alerting
everyone.
This commitment would coincide
with the SNB’s core mandates
of ensuring price stability in the
medium term and the stability of the
Swiss financial system as a whole,
as these actions will be essential to
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22 ArtisansdelaTransitionArtisansdelaTransition 23
Une étude des
ArtisansdelaTransition
LES INVESTISSEMENTS
DE LA BNS
DANS L’INDUSTRIE FOSSILE
AUX ETATS-UNIS :
UNE CATASTROPHE
FINANCIÈRE
ET POUR LE CLIMAT
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