In order to reduce greenhouse gas emissions to net zero by 2050, Switzerland has decided on self-regulation with the Swiss Climate Scores. Developed by the Confederation in cooperation with the financial industry, the Swiss Climate Scores aim to help position the country as a leader in “credible climate transparency”.
It is a big step for Switzerland who – with more than CHF 8.9 trillion (£7.9 trillion) of assets under management (SNB 2020) – are a significant wealth management hub. It would mean that any changes made to fund level disclosure standards would have significant global effects and get market-wide attention.
Acting as key data points, the Swiss Climate Scores are primarily based on the Taskforce on Climate related Financial Disclosures (TCFD) framework which is broken into a variety of different factors. These being Greenhouse Gas Emissions (Scope 1, 2 and 3), Exposure to Fossil Fuel Activities, Verified Commitments to Net-Zero, Management to Net-Zero, Credible Climate Stewardship and the optional Global Warming Alignment.
However, the Swiss Climate Scores take a different approach from the EU’s disclosures under the Sustainable Finance Disclosure Regulation (SFDR), as they are designed to do more than show the current degree of alignment with the taxonomy or the percentage of the portfolio in sustainable assets. They aim to be forward-looking indicators, showing the extent to which the portfolio is on track to meet the target of net zero emissions by 2050 and meet the Paris Agreement goals.
Creating a best-in-class solution
The Swiss Climate Scores were always going to be a logistical challenge for fund managers to deal with so finding the right solution to ease the reporting requirements was always going to be a vital step into their success.
At FE fundinfo – having sought insight from key stakeholders including the Swiss Government, the Asset Management Association, wealth managers and industry standard-setters we identified three main areas for consideration that would be vital components to any successful Swiss Climate Scores reporting solution.
Consideration one: Content
The first consideration is what content to include. With the Swiss Climate Scores there are different data types to think about and weigh-up. On the one hand there is the qualitative and fund strategic data. On the other hand, there is the quantitative data which will include five main data points that need to be calculated. These are weighted average carbon intensity, the carbon footprint; the exposure to fossil fuel activities such as coal, global warming alignment and verified commitments to net-zero.
Consideration two: Design
The second point for consideration is the template design. Providing a reporting template that is in line with the recommended Swiss Climate Scores framework is vital, while also ensuring the capabilities that allow for the flexibility of users to create their own conditions and glossaries.
Consideration three: Operations
The third important point to create a successful reporting solution is for report production is scalability. This means that the system is still able to cope with the requirements in a way that can produce millions of documents each month!
This goes hand-in-hand with translations. As the Swiss Climate Scores are expected to be a client facing report, it is important to consider the translation of the report into the different languages in Switzerland.
What’s next for the Swiss Climate Scores?
At the time of writing, Swiss Climate Scores remain a voluntary disclosure. You must assume, therefore, that the early adopters of them will be those that expect them to show their portfolios in a good light.
Time will tell if funds in Switzerland choose this route and especially if non-Swiss Asset Managers will also follow the recommendations of the market or if a considerable number look to only adopt the disclosure requirements under the SFDR.
Of course, it is possible that the more sustainability-minded fund groups will publish both, so as not to miss out on any opportunity to promote their credentials.
Failure to adopt however, could also lead to voluntary reporting becoming mandatory; but this is probably some way off as an option yet.
In order to help those early adopters minimise the efforts required, FE fundinfo does offer the production of Swiss Climate Score reports helping focus on the three main considerations and leveraging more than 15 years’ experience in ESG reporting.
Raakel Laitinen, ESG Product Business Analyst, FE fundinfo