The Paris Agreement of December 2015 states that the international community wants to align future finance flows with climate-friendly development. A global temperature increase of no more than 2 degrees Celsius above pre-industrial levels is a critical threshold as a higher temperature increase can lead non-manageable climate impact or even to irreversible tipping points in the climate system. Due to the long retention period of greenhouse gases in the atmosphere emissions are to be stabilised at net zero in the second half of this century.
A 2015 FOEN study on “Carbon risks for the financial centre of Switzerland” showed that the greenhouse-gas intensity of the Swiss equity fund market is currently incompatible with this climate-policy goal of 2 degrees Celsius. This can pose a number of risks for investors. Consistent mitigation of climate change through increased CO2 prices and stricter regulations, for example, can lead to value adjustments (transition risks). In addition, damage to production sites or other points in the value chain due to an increasing number of extreme weather events can result in losses in value (physical risks). With the growing awareness of customers, reputational risk also increases that investors frequently mention as motivation to switch to investment strategies that are more climate friendly.
Reliable information about the CO2 exposure of investments and associated risks are a first step to change investment behaviour. The return on low-carbon investment strategies is central in this regard.
The main objectives of the study thus are, first, to expand knowledge about determining the climate impact of finance flows, and second, to examine the performance of investment strategies that are more climate-friendly.