Switzerland needs about 13 billion francs a year to finance its goal of achieving carbon neutrality by 2050. She also wants to invest 600 million francs a year in sustainable projects in developing countries. Will a green investment bank help achieve its goals?
This content was published on Jul 08, 2022 – 09:00
The idea sounds just on paper. Create a new state-controlled bank that would invest 10 billion francs in environmental projects over the next decade.
Government-backed investments can pave the way for sustainability and encourage commercial investors to follow suit by dispelling their fears about risk. Such an approach could accelerate funding for innovation in, for example, solar energy and CO2 capture and removal.
In addition, the Green Investment Bank (GIB for Green Investment Bank in English) will be a source of experience and data available to other players in the financial sector.
Behind this proposal is the Swiss think tank Foraus, which has received the support of many of the country’s parliamentarians. The project has also attracted critical voices who doubt that such an organization achieves its purpose or fear that it will disrupt competition in the commercial banking sector.
In May, five parliamentarians from different parties proposed the creation of such an institution in Switzerland. “Projects that require large investments and pose an increased risk continue to have difficulty attracting private capital on the scale and at the required speed,” says the proposal, supported by more than 80 parliamentarians.
Switzerland is one of the economic powers that have collectively decided to invest $100 billion a year to fight global warming in developing countries. He has calculated that his fair share is 600 million a year, but is struggling to find a share of 150 million from the private sector.
This idea of a bank or fund that can funnel taxpayer money to sustainable projects has already been implemented in other parts of the world (see box below). This type of device exists in countries such as the UK, Germany, Australia, Malaysia, Japan, the United Arab Emirates, and several US states.
Switzerland, for its part, has two state-backed sustainable investment funds, but no regulated bank is solely dedicated to this task.
Foraus, a think tank dedicated to Swiss foreign policy, believes that the GIB would be the ideal solution to fill the current funding gap. The aim is to “take inspiration from these successful examples of global companies and apply them to the challenges of Switzerland,” said Sébastien Chaidi, co-author of the proposal, to swissinfo.ch. Within this mechanism, state support is crucial. “When GIB invests in a project, it sends a message that private investors are safe enough to risk their funds.”
Because greening Switzerland will cost money. The Swiss Bankers Association (SBA) estimates the fortune at 387 billion francs.External reference the amount of sustainable investment needed over the next three decades to reach Bern’s climate targets by 2050. This is 12.9 billion francs per year.
However, the SBA believes that the resources available in the Swiss financial center are sufficient to take on this burden. The association is wary of the idea of a new state-controlled bank that would step in on the heels of the private banking sector.
The Swiss Organization for Sustainable Finance (SSF), which brings together 190 financial institutions, scientists and representatives of the public sector, aims to make Switzerland a leading center for sustainable finance. He, too, is skeptical about the idea of a Swiss GIB.
Parliament should seek to address regulatory issues that are already hindering sustainable investment projects, rather than engaging in high-profile projects such as the creation of a new bank, argues Sabina Döbeli, CEO of SSF. Swiss system of direct democracy tends to slow down proceduresExternal reference planning, drowning solar, wind and hydroelectric power plants in lengthy legal and judicial battles.
“It is not a lack of funding that is hindering the acceleration of progress in terms of sustainable development in Switzerland,” emphasizes Sabine Döbely. The limiting factor is the complexity and excessive length of procedures for obtaining building permits.”
“Many energy projects are funded by state-owned companies that are constantly looking for new investment programs. The problem is obtaining the necessary permissions to run these projects.”
As we have seen, Switzerland already has two public funds to encourage sustainable investment. The Technology Fund, endowed with 500 million francs and focused on the domestic market, has already guaranteed bank loans worth 220 million francs for climate projects. The Swiss Investment Fund for Emerging Markets (SIFEM) has invested more than one billion francs in developing countries.
Foraus and the supporters of the GIB project in Parliament believe that the new green investment bank could make a difference to financing sustainable projects abroad.
An investment bank that is subject to special rules will increase the chances and quality of this type of project. This will give startups full access to the debt market when raising new funds. And will play the role of an adviser in the future of possible acquisitions or participation in public markets.
“The bank can influence investments through a wide range of financial instruments that are not available to the fund,” explains Sebastien Chaidi of Foraus think tank.
But not everyone shares this opinion. Such is the case for Martin Stadelmann, head of climate investment at South Pole Group’s sustainable finance consultancy, which co-manages the Swiss Technology Fund.
“It will take five to ten years to build a brand new GIB – so much time wasted on climate action,” he told swissinfo.ch. Reforming existing institutions would be much faster and with much greater effect.”
“A smarter option would be to expand SIFEM’s mission to give it a clear climate mandate and allow it to take on more risks using a wider range of financial instruments. For example, seed capital, flexible debt instruments or the provision of technical assistance. Expanding the mandate of the Technology Fund to cover emerging markets with loan guarantees would also be very helpful.”
Clearly, there is nothing to suggest that a green investment bank will see the light of day. To pass the ramp, the June parliamentary motion in favor of the project must be the subject of detailed technical scrutiny before debate in the Houses of Parliament. The process can take months before any decision is made.
GIB around the world
Some examples of public banksExternal reference for investing in sustainable projects exist in the world.
In Germany, the Kreditanstalt für Wiederaufbau (KfW) was created in 1948 to channel Marshall Plan funds to rebuild a war-torn country. He later helped save commercial banks during the 2008 financial crisis.
KfW also has a sustainable funding mandate. It is active in the carbon market and, together with its subsidiaries, invests in green projects.
In the UK, the Green Investment Bank was established in 2012 to help achieve London’s climate goals. It was then sold to the private sector. But some British politicians are considering setting up a new state-backed green investment bank.
The Scottish National Investment Bank invests in a variety of key infrastructure projects, including renewable energy.
Several US states are investing their public finances in sustainable projects through green banks – New York Green Bank, New Jersey Green Resilience Bank and Connecticut Green Bank.
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Translation from English: Pierre-Francois Besson
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