By granting loans to companies and private individuals, Swiss banks indirectly influence the greenhouse gas emissions of the companies and properties they finance. An extrapolation by the Lucerne University of Applied Sciences and Arts shows that Swiss banks indirectly co-finance between 8.9 and 10.3 million tons of CO2 Scope 1 and Scope 2 emissions of their customers in Switzerland through lending and can therefore support climate-friendly investments through lending.
Bank counters, offices and ATMs - the direct greenhouse gas emissions of financial institutions are limited. However, indirect emissions from their customers - the so-called financed emissions - have a far greater impact on the climate. Researchers at Lucerne University of Applied Sciences and Arts (HSLU) have converted the emissions of borrowers to the financing volume. The extrapolation of the "Sustainable Lending Monitor" shows that Swiss banks can indirectly influence between 8.9 and 10.3 million Scope 1 and Scope 2 greenhouse gases (see box) of their customers, and thus their own Scope 3 emissions, by granting loans in Switzerland. "The figures make it clear that lending is an important lever for financial institutions to achieve their environmental goals," explains study leader and co-author Nadine Berchtold. "In future, the figures will become more accurate from year to year as more data becomes available," the co-author continues.
Mortgages and corporate loans examined
The estimate is based on the figures published by the first Swiss retail banks as part of the PCAF standard (Partnership for Carbon Accounting Financials). These retail banks cover around a quarter of the total credit volume in Switzerland. On the other hand, the researchers used the credit statistics published by the SNB for the calculation. Overall, the issues were estimated for the total credit volume of CHF 1.3 billion, with loans broken down into the three categories of commercial and residential real estate mortgages and corporate loans. The researchers examined the so-called Scope 1 and Scope 2 emissions of the financed real estate and companies (see box).
Emission-intensive corporate loans
At 37%, residential real estate accounts for the largest share of financed loan emissions. However, corporate loans are significantly more CO2-intensive (see figure). While corporate loans only account for six percent of the loan volume, they are responsible for more than a quarter of the calculated financed greenhouse gas emissions. Nadine Berchtold, head of the study, explains: "Due to the low proportion of corporate customer loans, these have probably often been underestimated in the past. Most banks only offer financing products to promote the sustainability of mortgages, but not of companies."
Even more data available in the future
At the moment, however, the six banks examined still show low data quality in their greenhouse gas accounting. "Calculating emissions from corporate loans is challenging, as the intended use of the funds is often unclear and can change over the term of the loan," says the co-author. In addition, data on turnover, equity and debt of the financed companies is often incomplete, for example due to late balance sheet submissions or incomplete financial statement data. However, Nadine Berchtold expects improvements: "Regulatory developments and voluntary initiatives will ensure that the extrapolation comes ever closer to the actual issues." For the financial services provider SIX, Martina Macpherson, Head of ESG Product Strategy and Management at SIX, explains: "Conducting the study was crucial for SIX to identify and better assess market dynamics and trends in the sustainable finance market."
Next step: Define and implement a reduction pathway
However, calculating the financed emissions is only the first step for a bank. Banks must then plan and set out how they intend to actively reduce these emissions in accordance with the PCAF standard in order to achieve the net zero target. "Banks that simply implement the current regulations from the self-regulation of the Swiss Bankers Association without introducing further measures will hardly be able to achieve the net zero target," says Nadine Berchtold, head of the study. In order to be able to reduce emissions in the long term, reductions in commercial real estate and corporate client loans must therefore take place in addition to emission reductions in residential real estate.
Scope 1, 2 and 3 emissions
The Greenhouse Gas (GHG) Protocol defines three levels (scopes) for measuring greenhouse gas emissions: Scope 1 covers direct emissions from the company’s own processes, Scope 2 concerns indirect emissions from purchased energy, and Scope 3 covers all other indirect emissions along the value chain. Scope 3 is particularly relevant for banks, as it covers emissions from the loan portfolio - i.e. financed emissions. Financed emissions are greenhouse gas emissions caused by the economic activities of companies and projects that are supported by financial institutions such as banks through loans, investments and other commitments.
