Investments and financing are considered climate compatible when they are in line with the internationally agreed climate target of keeping global warming under 2 degrees Celsius. For the time being, this objective should be implemented primarily through voluntary action taken by the financial sector. The federal government periodically records the climate impact of voluntary efforts.
After 2017 and 2020, the FOEN and the State Secretariat for International Finance (SIF) initiated a third, comprehensive test in 2022 to analyse the climate goal alignment of financial portfolios. This test was conducted under the title PACTA 2022 (Paris Agreement Capital Transition Assessment). All Swiss banks, asset managers, pension funds and insurance companies could test their portfolios anonymously on a voluntary basis. The pension fund association ASIP, the Swiss Insurance Association SVV, the Bankers' Association SBA, the Asset Management Association Switzerland AMAS and the Conference for Investment Foundations KGAST support the climate compatibility tests. The next climate test for the Swiss financial market will be conducted in 2024.
In 2022, 133 financial institutions voluntarily participated in the PACTA Climate Test. Banks, asset managers and insurance companies participated in a similar number as in the last test round. Pension funds participated significantly less compared to 2020. More than two-thirds also took part in the qualitative survey, in which climate-relevant measures are recorded. Financial institutions of various sizes from all sectors took part. The results are meaningful and comparable with the test results from 2017 and 2020 at the level of the entire financial market.
The PACTA climate tests are coordinated internationally. With the third implementation of the comprehensive progress measurement, Switzerland becomes a pioneer in this field.
How climate-friendly is investment in the Swiss financial market?
There are good examples in all four financial sectors and all tested asset classes that are already "aiming higher", as the title of the report says - at an actual climate impact in the real economy. This shows that the financial market can play an important role in accelerating climate transition.
However, until the Swiss financial market as a whole act in a climate-friendly manner, greater efforts are now needed in a timely manner. For example, exposure to fossil fuels (coal, oil, gas) has decreased significantly in all financial sectors and is now rather low by international standards. However, the companies held in the equity portfolios in particular are planning to further expand their production capacities instead of scaling back as necessary for the climate target. Targeted and coordinated action to put pressure on companies by more Swiss financial institutions could help to adjust their transition plans.
Fortunately, the share of renewable heating systems in buildings held by institutional providers has increased from 25 percent in 2020 to 30 percent in 2022. If the reduction path for the Swiss building stock from the Long-Term Climate Strategy of Switzerland is deposited (blue lines), the tested portfolios are slightly below this today. Considerable efforts are already needed by 2030, both for banks, pension funds, asset managers and insurance companies. Most financial institutions lack sufficient renovation plans for the buildings, which should all be without fossil heating in 30 years.
Almost 40 percent of the mortgage lenders already state that they use a wide variety of measures to encourage their customers to make energy-efficient renovations. Which of these measures are more convincing than others, however, remains unclear. A standard for what is considered an energy-efficient mortgage could provide clarity in this regard.
Here you can find the results report of the anonymised metadata in English as well as the summary in English, German and French:
The PACTA method
The tests were carried out using the PACTA method (Paris Agreement Capital Transition Assessment). It enables a standardised analysis for global equity, corporate bonds and credit portfolios. The underlying database covers around 250,000 industrial assets worldwide. On the following website you will find more information on the PACTA model, which is carried out by the independent, international and non-profit organisation Rocky Mountain Institute RMI and is used by numerous financial institutions and countries. It is available open source on the market:
www.transitionmonitor.com/pacta-ch-2022
Switzerland additionally offers its financial institutions a test that compares Swiss real estate and mortgage portfolios with the climate target for the domestic building stock. The PACTA real estate model, which was developed on behalf of the FOEN and further developed for the 2022 climate test, is also available unlicensed on request. With the analysis of all these climate-relevant sectors, 70 to 90 percent of the emissions indirectly linked via the capital markets can be captured.
Last modification 24.11.2022
