In June this year, the Federal Council in Switzerland launched its Swiss Climate Scores for investment funds and portfolios as part of its plan to position the country as a leader in “credible climate transparency”.
While the scores are voluntary, the hope is that they will get enough traction to become the default set of indicators through which investors can check a fund’s transition to net zero and alignment with the Paris Climate Agreement.
The scores are made up of six elements, the first two showing the current state of the portfolio and the others identifying its transition to net zero:
- Greenhouse Gas Emissions, both intensity (per million CHF of revenue) and footprint (per million CHF invested);
- Exposure to fossil fuel activities, as a percentage of the fund or portfolio;
Global warming alignment, illustrating what temperature rise the global economy would achieve if it matched the portfolio; - Verified commitments to net zero, showing the percentage of the companies in the portfolio with genuine net-zero commitments and interim targets;
- Credible climate stewardship, identifying whether companies in the fund are part of an active stewardship strategy in respect of climate change; and
- Management to net zero, setting out the path to net zero in the fund’s investment strategy.
At the start of the scheme, the authorities have indicated the uncertainty to which each of these elements (apart from the last) is subject in their calculations, with the global warming alignment having a high level of uncertainty, and exposure to fossil fuel activities and verified commitments to net zero at the low end.
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.
None of the six elements in the scores, or the metrics behind them, should come as a shock, as the Swiss are not looking to create a whole new set of metrics to add to the ESG indicators already out there. Most of the data is based on the Glasgow Financial Alliance for Net Zero (GFANZ) and the Taskforce for Climate-related Financial Disclosures (TCFD).
However, the Swiss believe the way in which the metrics are combined into their scores takes them a step further in terms of their alignment with the Paris Agreement.
There is no obligation on funds to publish these scores, but the Federal Department of Finance is hoping that groups will “seize this opportunity and take a leading role in climate transparency”, with the added goal of expanding the country’s competitiveness in finance, creating new jobs and generating value added.
As a voluntary disclosure, you have to assume that the early adopters of the Swiss Climate Scores will be those that expect them to show their portfolios in a good light. It will be interesting to see how much traction they get and whether funds in Switzerland go down that route, or if a significant number will choose to adopt the disclosure requirements under the SFDR, for consistency with funds across Europe.
Of course, with mostly the same underlying data, 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.
In order to minimise the effort required to produce these reports for fund managers, FE fundinfo offers the production of Swiss Climate Score reports leveraging more than 15 years’ experience in ESG reporting. Our reporting solution offers flexibility with respect to your chosen ESG data provider as well as integrating your ESG credentials into existing financial factsheets.