Swiss Climate Scores to Make a Splash at the Singapore Fintech Festival

by Mario Tuor, editor-in-chief of finance.swiss October 17, 2022

Global warming has dramatic impacts on nature and human society. Aligning financial flows with international climate goals is therefore essential. But how to tell if an investment portfolio is aligned?

Switzerland has emerged as the first country worldwide to establish a set of internationally accepted transparency criteria for climate-aligned investing; the Swiss Climate Scores.

On 29 June 2022, the Federal Council presented the Swiss Climate Scores for the first time. The government recommended that Swiss financial market players apply the Swiss Climate Scores to financial investments and client portfolios where appropriate.

In this way, the financial sector can contribute to mitigating climate change as well as use climate-related transparency as a competitive advantage.

The Swiss Climate Scores provide institutional and private investors with comparable and meaningful information on the extent to which their financial investments are compatible with international climate goals.

They contain indicators that not only reflect the current situation of global companies in the financial product or portfolio, but also show where these companies are currently positioned in relation to global climate goals which seeks to achieve the net zero target by 2050.

Net zero means that global emissions of greenhouse gases may not exceed the amount that can be absorbed by natural and technical sinks.

The voluntary use of the Swiss Climate Scores is intended to make investment decisions more efficient.

Investors can benefit from economic opportunities in the transition to net zero and at the same time better contribute to achieving climate goals.

At the upcoming Singapore Fintech Festival, the Swiss Climate Scores will be one of Switzerland’s focal points to convince the international community about its pioneering role in financial climate transparency.

These are the six indicators of the Swiss Climate Scores

Greenhouse Gas Emissions: Encompasses all sources of greenhouse gas emissions from invested companies (scope 1-3), including relevant emissions of their suppliers and products.

Exposure to fossil fuel activities: There is scientific consensus of the need to phase-out coal and stop financing new fossil fuel projects. The figures show the share of investments into companies that earn more than 5% of their revenues from such business activities.

Verified commitments to net-zero: Companies are increasingly committing voluntarily to transitioning to net-zero and setting interim targets. The effectiveness of such commitments depends on whether interim targets are credible, science-based, and transparent.

Management to net-zero: Financial institutions can contribute to the transition to net-zero, by aligning their investment strategy with a consistent 1.5°C decarbonisation pathway.

Credible climate stewardship: Financial institutions can contribute to the transition to net-zero, by engaging with invested companies on third-party verified, science-based net-zero aligned transition plans until 2050.

Global warming potential: This is the level of global warming that would occur if the global economy acted with the same ambition as the companies in the portfolio. Some portfolios with climate objectives may intentionally include investments in companies that are not yet on track to 1.5°C, but seek to contribute actively to climate goals by improving the alignment of investee companies to bring a larger share of the economy into alignment over time.

In order to ensure that the Swiss Climate Scores continue to represent best practice in terms of climate transparency in the future, they are to be regularly reviewed and, if need be, adapted to the latest international findings, starting in 2023.

The financial industry’s template for implementation

On 5 October 2022, the financial sector, under the leadership of the Asset Management Association Switzerland (AMAS) and the Swiss Sustainable Finance Association (SSF), presented concrete proposals and a template on how implementation in the sector should be as simple and efficient as possible.

This template, based on expert consensus, is available to the public and provides users with the necessary definitions and calculations to better understand and report on the recommended indicators.

This first version of this template is a starting point and will be tested by industry players. The public is welcome to send in their feedback for future improvements.