Switzerland needs almost 13 billion francs a year to finance its goal of climate neutrality by 2050. In addition, it intends to invest CHF 600 million a year in sustainable projects in developing countries. Would a green investment bank help achieve their goals?
This content was published on July 08, 2022 – 09:00
On paper, the idea sounds simple. Establish a new state-controlled bank that would invest 10 billion Swiss francs in green projects over the next decade.
Government-backed investments could pave the way to sustainability and encourage commercial investors to follow suit by dispelling their doubts about risk. For example, the approach could speed up funding for innovations in solar energy and carbon capture and removal.
In addition, a green investment bank (GIB for Green Investment Bank in English) would be a source of expertise and data that would be made available to other players in the financial sector.
The Swiss think tank Foraus is behind the proposal and has garnered the support of many parliamentarians in the country. The project has also drawn critical voices who doubt such a venture will achieve its goal or fear it will distort competition in the commercial banking sector.
In May, five parliamentarians from different parties submitted a motion for the creation of such an institution in Switzerland. “Projects that require large investments and pose increased risk still struggle to attract private capital at the scale and speed required,” reads the motion, which is backed by more than 80 lawmakers.
Switzerland is one of the economic powerhouses that have jointly decided to invest 100 billion a year in the fight against global warming in developing countries. She reckons on a fair share of 600 million a year but is struggling to find a 150 million share from the private sector.
This idea of a bank or fund capable of channeling taxpayers’ money into sustainable projects has already been implemented in other parts of the world (see box below). This type of device exists in countries like UK, Germany, Australia, Malaysia, Japan, United Arab Emirates and several states of United States.
For its part, Switzerland has two state-backed sustainable investment funds, but no regulated bank is dedicated to this task alone.
Fears from a competitive perspective
Foraus, a think tank dedicated to Swiss foreign policy, believes a GIB would be ideal 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 facing Switzerland,” the proposal’s co-author Sébastien Chahidi told swissinfo.ch. Within the mechanism, state support is crucial. “When a GIB invests in a project, it sends a signal that it’s safe enough for private investors to risk their money on.”
Because greening Switzerland costs money. The Swiss Bankers Association (SBA) estimates CHF 387 billionexternal link how much sustainable investment will be needed over the next three decades to achieve the Bern climate goals by 2050. That is 12.9 billion Swiss francs per year.
However, the SBA believes that the resources available in the Swiss financial center are sufficient to bear this burden. The association is wary of the idea of a new state-controlled bank that would follow in the footsteps of the private banking sector.
Swiss Sustainable Finance (SSF), an organization bringing together 190 financial companies, academics and public sector stakeholders, aims to make Switzerland a leading center for sustainable finance. He too is skeptical about the idea of a Swiss GIB.
Parliament should try to solve the regulatory problems that are already hindering sustainable investment projects, rather than pursuing headline-grabbing projects like the creation of a new bank, argues Sabine Döbeli, CEO of the SSF. The Swiss system of direct democracy tends to slow down proceduresexternal link of planning, drowning solar, wind and hydropower projects in time-consuming legal and court processes.
“What is preventing the acceleration of progress in terms of sustainability in Switzerland is not the lack of funding,” emphasizes Sabine Döbeli. The limiting factor is the complexity and excessive length of the procedures for obtaining building permits.”
“Many energy projects are funded by public companies that are always looking for new programs to invest in. The problem is getting the necessary permits to start these projects.”
As we have seen, there are already two public funds in Switzerland to promote sustainable investments. The technology fund, which is endowed with CHF 500 million and focuses on the domestic market, has already guaranteed bank loans of CHF 220 million for climate projects. The Swiss Investment Fund for Emerging Markets (SIFEM) has invested more than CHF 1 billion in developing countries.
Foraus and supporters of the GIB project in Parliament believe that the new green investment bank could make a difference in financing sustainable projects abroad.
An investment bank subject to ad hoc regulation would improve the chances and quality of these types of projects. It would give start-ups full access to the debt capital market when raising new funds. And would play the role of advisor with regard to possible acquisitions or participations in public markets.
“A bank can use a variety of financial instruments to leverage the investment that a fund does not have,” explains Sébastien Chahidi of the Foraus think tank.
But not everyone shares this opinion. Such is the case of Martin Stadelmann, Head of Climate Investments at sustainable finance consultancy South Pole Group, which co-manages the Swiss Technology Fund.
“Building a completely new GIB would take five to 10 years – so much time is wasted on climate protection,” he told swissinfo.ch. Reforming existing institutions would be much faster and have a much greater impact.”
“The wiser option would be to expand SIFEM’s mission, give it a clear climate mandate and allow it to take more risks using a wider range of financial instruments. Such as seed capital, flexible debt instruments or the provision of technical assistance. Expanding the tech fund’s mandate to include emerging markets with loan guarantees would also be very beneficial.”
Obviously there is nothing to suggest that a green investment bank will see the light of day. In order to pass the ramp, the June parliamentary motion in favor of the project must be the subject of a detailed technical study before debate takes place in the chambers of parliament. The process could take months before a decision is possible.
GIBs around the world
Some examples of government funded banksexternal link to invest in sustainable projects, there are in the world.
In Germany, the Kreditanstalt für Wiederaufbau (KfW) was founded in 1948 to use Marshall Plan funds to rebuild the war-torn country. It later helped bail out commercial banks during the 2008 financial crisis.
KfW also has a sustainable finance mandate. It is active in the carbon market and invests in green projects together with its subsidiaries.
The Green Investment Bank was founded in Great Britain in 2012 to contribute to London’s climate goals. It was then sold to the private sector. But some British politicians are eyeing the possibility of a new state-backed green investment bank.
The Scottish National Investment Bank invests in a wide range 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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English translation: Pierre-François Besson
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