The question of a state-funded green investment bank


Investors are reluctant to invest their money in risky and sustainable projects. © Keystone / Valentin Flauraud

Switzerland needs nearly 13 billion francs a year to finance its carbon neutrality target by 2050. It also wants to invest 600 million francs a year in sustainable projects in developing countries. Would a green investment bank help achieve its goals?

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

swissinfo.ch

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

Government-backed investments could pave the way for sustainability and encourage commercial investors to follow suit by dispelling their doubts about risk. The approach could accelerate the financing of innovations in the fields of solar energy and CO2 capture and removal, for example.

Furthermore, a green investment bank (GIB for Green Investment Bank in English) would be a source of expertise and data made available to other players in the financial sector.

Behind the proposal is the Swiss think tank Foraus, which has received the support of many parliamentarians in the country. The project has also attracted critical voices who doubt that this entity will achieve its goal or fear that it will distort competition in the commercial banking sector.

In May, five parliamentarians from different parties tabled a motion to create such an institution in Switzerland. “Projects that require large investments and pose greater risk still struggle to attract private capital in the scale and speed required,” said the motion, supported by more than 80 MPs.

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

This idea of ​​a bank or fund capable of channeling taxpayers’ money towards sustainable projects has already been implemented in other parts of the world (see box below). This type of device exists in countries such as Great Britain, Germany, Australia, Malaysia, Japan, the United Arab Emirates and several states of the United States.

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

Fears from a competitive perspective

A think tank dedicated to Swiss foreign policy, Foraus believes a GIB would be ideal to fill the current funding gap. The aim is to “draw inspiration from these success stories of global companies and apply them to Switzerland’s challenges,” co-author of the proposal, Sébastien Chahidi, told swissinfo.ch. Within the mechanism, the support of the state is essential. “When a GIB invests in a project, it sends a signal that it is safe enough for private investors to risk their funds on it.”

Because making Switzerland greener will come at a cost. The Swiss Bankers Association (SBA) estimates CHF 387 billionExternal Link the amount of sustainable investments needed over the next three decades to achieve Bern’s climate goals by 2050. This amounts to 12.9 billion francs per year.

However, the SBA believes that the resources available in the Swiss financial center are sufficient to meet this burden. The association is wary of the idea of ​​a new state-controlled bank that would enter the tip of the private banking industry.

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 too is skeptical of the idea of ​​a Swiss GIB.

Parliament should seek to resolve regulatory issues that are already hindering sustainable investment projects, rather than pursuing headline-grabbing projects, such as setting up a new bank, says Sabine Döbeli, CEO of SSF. The Swiss system of direct democracy tends to slow down proceduresExternal Link planning, drowning solar, wind and hydroelectric projects in lengthy legal and judicial battles.

“In Switzerland, what hinders the acceleration of progress in terms of sustainability is not the lack of funds, emphasizes Sabine Döbeli. The limiting factor is the complexity and excessive duration of the procedures for obtaining building permits “.

“Many energy projects are funded by public companies that are constantly looking for new programs to invest in. The problem is obtaining the necessary permits to start these projects ”.

As we have seen, Switzerland already has two public funds to promote sustainable investments. The Technology Fund, endowed with 500 million francs and concentrated on the domestic market, has already secured bank loans of 220 million francs for climate projects. The Swiss Investment Fund for Emerging Markets (SIFEM) has invested over one billion francs in developing countries.

Invest abroad

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 regulations would improve the possibilities and the quality of this type of project. It would give start-ups full access to the debt market when they raise new funds. And it would play the role of advisor in the perspective of possible acquisitions or shareholdings in public markets.

“A bank can leverage investment through a wide variety of financial instruments that a fund does not have at its disposal,” explains Sébastien Chahidi of the Foraus think tank.

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

“Building a completely new GIB would take five to ten years – so much time wasted on climate action,” he told swissinfo.ch. Reforming existing institutions would be much faster, with a much greater impact ”.

“The wisest option would be to broaden SIFEM’s mission to give it a clear climate mandate and allow it to take more risks using a wider range of financial instruments. Such as initial capital, flexible debt instruments or the provision of technical assistance. It would also be very beneficial to extend the mandate of the Technology Fund to cover emerging markets with loan guarantees. “

Clearly, nothing says that a green investment bank will see the light. To overcome the ramp, the June parliamentary motion in favor of the project must be the subject of an in-depth technical study before the debate in the classroom. The process could take months before any decision is possible.

GIB in the world

Several examples of state-funded banksExternal Link to invest in sustainable projects exist in the world.

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

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

In Great Britain, the Green Investment Bank was created in 2012 to contribute to London’s climate goals. It was then sold to the private sector. But some British politicians are considering a new state-backed green investment bank.

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

Several states in the United States invest their public finances in sustainable projects through green banks: the New York Green Bank, the New Jersey Green Resilience Bank and the Connecticut Green Bank.

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Translation from English: Pierre-François Besson

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