The issue of the State Bank of Green Investments


Investors are reluctant to invest their money in risky projects that are being implemented. © Keystone/ Valentin Floro

Switzerland needs almost 13 billion francs a year to finance its goal of becoming carbon neutral by 2050. It also wants to invest 600 million francs a year in sustainable development projects in developing countries. Will a green investment bank help you achieve your goals?

This content was published on 08 July 2022 – 09:00

swissinfo.ch

The idea sounds simple on paper. Create a new state-controlled bank that would invest 10 billion francs in environmental projects over the next decade.

Government-backed investment can pave the way for sustainability and encourage commercial investors to follow suit, alleviating their risk skepticism. Such an approach could accelerate the financing of innovations in areas such as solar energy and CO2 capture and sequestration.

In addition, the Green Investment Bank (GIB – Green Investment Bank) will be a source of experience and data that will be available to other players in the financial sector.

Behind this proposal stands the Swiss analytical center Foraus, which has received the support of many parliamentarians of the country. The project has also attracted critical voices, who doubt that such an organization is achieving its goal or fear that it will distort competition in the commercial banking sector.

In May, five parliamentarians from different parties submitted a proposal to create such an institution in Switzerland. “Projects that require large investments and pose an increased risk are still unable to attract private capital at the required scale and at the required speed,” said the proposal, which was supported by more than 80 parliamentarians.

Switzerland is one of the economic powers that jointly decided to invest 100 billion a year in the fight against global warming in developing countries. He estimates that his fair share is 600 million a year, but it is difficult to find a share of 150 million from the private sector.

This idea of ​​a bank or foundation able to channel taxpayers’ money into sustainable development projects has already been implemented in other parts of the world (see box below). This type of device exists in countries such as the United Kingdom, Germany, Australia, Malaysia, Japan, the United Arab Emirates, and several states in the United States.

Switzerland, for its part, has two public investment funds, but no regulated bank is dedicated exclusively to this task.

Fears from a competitive point of view

Foraus, a think tank specializing in Swiss foreign policy, believes the 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 Switzerland’s challenges,” proposal co-author Sébastien Shahidi told swissinfo.ch. Within the framework of the mechanism, state support is extremely important. “When the GIB invests in a project, it sends a signal that it is safe enough for private investors to risk their money.”

Because landscaping Switzerland will cost money. The Swiss Bankers Association (SBA) estimates 387 billion francsExternal link the amount of sustainable investment needed over the next three decades to meet the Bern 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 accept this burden. The association is wary of the idea of ​​creating a new state-owned bank, which would become a step in the private banking sector.

Swiss Sustainable Finance (SSF), an organization that brings together 190 financial institutions, academics and public sector participants, aims to make Switzerland a leading center for sustainable finance. He is also skeptical of the idea of ​​a Swiss GIB.

Parliament should aim to solve the regulatory problems that are already preventing sustainable investment projects, rather than dealing with such high-profile projects as the creation of a new bank, says Sabine Dobeli, CEO of SSF. The Swiss system of direct democracy tends to slow down proceduresExternal link planning, drowning solar, wind and hydroelectric plants in protracted legal and court battles.

“In Switzerland, it is not the lack of funding that is preventing the acceleration of progress from the point of view of sustainability,” emphasizes Sabine Debeli. The limiting factor is the complexity and excessive length of procedures for obtaining building permits.”

“Many energy projects are financed by state-owned companies, which are constantly looking for new investment programs. The problem is getting the necessary permits to start these projects.”

As we have seen, Switzerland already has two public funds to promote sustainable investment. The technology fund, which is endowed with 500 million francs and focuses 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.

Invest abroad

Foraus and supporters of the GIB project in parliament believe that a new green investment bank could transform the financing of sustainable projects abroad.

An investment bank subject to special rules will improve the chances and quality of this type of project. This will give startups full access to the debt market when raising new funds. And would play the role of an advisor in the perspective of possible acquisitions or participation in public markets.

“The bank can influence investments with the help of various financial instruments that the fund does not have at its disposal,” explains Sébastien Shahidi from the Foraus think tank.

But not everyone shares this opinion. This is the case for Martin Stadelmann, head of climate investment at the sustainable finance consultancy South Pole Group, which co-chairs the Swiss Technology Fund.

“The construction of a brand new GIB will take five to ten years – that’s how much time has been spent on climate action,” he told swissinfo.ch. Reforming the existing institutions would be much faster and with a 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. As seed capital, flexible debt instruments or technical assistance. Expanding the mandate of the Technology Fund to cover emerging markets with credit guarantees would also be very helpful.”

Obviously, nothing suggests that a green investment bank will see the light of day. To pass the ramp, the June parliamentary initiative in favor of the project must be subject to a detailed technical study before debate in the chambers of parliament. The process can take several months before any decision is made.

GIB worldwide

A few examples of state banksExternal link invest in projects that exist in the world.

In Germany, the Kreditanstalt für Wiederaufbau (KfW) was founded in 1948 to channel Marshall Plan funds to rebuild the war-torn country. It later helped save commercial banks during the 2008 financial crisis.

KfW also has a mandate for sustainable financing. It is active in the carbon market and, together with its subsidiaries, invests in environmental projects.

In Britain, the Green Investment Bank was established in 2012 to help London achieve its climate goals. Then it was sold to the private sector. But some British politicians are considering the possibility of creating a new public investment bank.

The Scottish National Investment Bank is investing in a number of key infrastructure projects, including renewable energy.

Several US states invest their public finances in sustainable development projects through green banks – New York Green Bank, New Jersey Green Resilience Bank and Connecticut Green Bank.

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Translated from English by Pierre-François Besson

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