Climate change also affects Switzerland, which has committed itself to the net zero target in the Paris Agreement. With the rejection of the CO2 law, it is now all the more important to define the way forward. Business Sustainability Today talks to Alessandro Bee, Economist and Head of CIO Macro & Strategy at UBS Switzerland, about the implications of climate change for Swiss businesses and how Switzerland can move towards net zero.
The impact of climate change on businesses in Switzerland – An expert interview with economist Alessandro Bee
Business Sustainability Today:Mr. Bee, what are the greatest economic impacts of climate change for Switzerland? Which sectors and industries are most affected?
Alessandro Bee:The two most relevant issues for Switzerland are, on the one hand, excess mortality, which we might now experience every summer, and, on the other hand, the increasing migration pressure due to climate change. Excess mortality is a controversial topic, especially when it comes to the measures to be taken and how much of a burden they will be on our society. As climate change is currently affecting poorer countries in particular, i.e. countries that are already under pressure today, migration pressure there could increase significantly. This would ultimately also affect Switzerland.
On the sectoral and regional level, climate change mainly affects tourism, agriculture and insurance. In the case of tourism, climate change could have both positive and negative effects, depending on the location, due to a rising snow line: positive for certain locations above the (new higher) snow line, negative for ski resorts with too little snow. For agriculture, hotter summers mean more drought and a spread of pests, which affects production. If less can be produced in Switzerland, prices and imports will rise. In addition, extreme weather events will increase with climate change. Floods and landslides can occur more frequently in Switzerland, even in places that were previously considered safe. This means that insurance companies will be more challenged and new questions will be raised, such as what else can be insured and how much it will cost.
Alessandro Bee, Economist
Business Sustainability Today:The Federal Council wants to achieve the net zero target by 2050. What does the rejection of the CO2 law mean for the Swiss economy and society?
Alessandro Bee:The CO2 law could have been the first step on the road to net zero. The aim of the law was to reduce greenhouse gas emissions by 50 percent with 1990 as the reference point. This would have meant that, on average across all sectors, companies in Switzerland would have had to reduce CO2 emissions by around 30 percent over the next 10 years. In addition, we are already somewhat behind when it comes to reducing greenhouse gases – for example, the targets that Switzerland has set itself for 2020 are unlikely to be met. The net zero target is thus very ambitious, which is probably why there was resistance.
Now it will be important for the Federal Council to identify why the law was rejected. Is it a resistance to net zero or a dislike of how to get there? The path to net zero has already been set in many countries and Switzerland has signed the Paris Agreement. Therefore, it is necessary to consider what should be changed. Does Switzerland want to focus more on incentives and less on prohibitions? Should innovation be promoted and certain taxes waived in return?
Business Sustainability Today:In the report “The Road to Net Zero for Switzerland” you describe four ways to reduce greenhouse gases. Financing negative emission technologies and reducing CO2 abroad are less of a priority for Swiss companies1 than expanding renewable energies and reducing energy consumption at home. How do you explain this and what is important to consider here?
Alessandro Bee:Negative emission technologies are not yet so popular because, on the one hand, they are not yet so well known, especially among small companies, and, on the other hand, they are still in the development phase. Their potential is difficult for companies to assess. As such technologies become more established, I would imagine that approval will also increase. In general, the will to change is strong among Swiss companies and the survey results show that Swiss companies are also willing to change domestically. Environmental protection is particularly important for companies with international value chains. Often such companies commit individually to the net zero target.
Note, however, that while the net zero (domestic) target is important, we need to do more to really make a substantial contribution to mitigating climate change. If we look at Switzerland’s domestic greenhouse gas emissions, we are on a par with the global average, which is a good result for an industrialised nation. But our CO2 footprint, i.e. what our consumption emits in CO2, is much larger. For example, we import cars and export medicines. This is good for our domestic CO2 balance because the energy-intensive car production does not take place in Switzerland – but the cars ultimately have Swiss buyers. Therefore, we are all challenged to reduce our own footprint at the individual level as well – beyond the domestic net zero target.
Business Sustainability Today:% of Swiss companies consider the net zero target to be achievable, according to the survey. This also means that 40% of Swiss companies are sceptical about it. In view of the rejection of the CO2 law, the question now naturally arises: how can these 40% be convinced and even motivated to work towards net zero?
Alessandro Bee:Here it is important to differentiate: A large proportion of companies that are sceptical and consider the net zero target to be unachievable nevertheless believe that it is desirable. In our study, we also saw that the more companies know about sustainability, the more likely they are to believe the goal is achievable. Moreover, companies that have a lot of knowledge about sustainability not only consider net zero to be achievable, but also see it as an opportunity for the economy and thus probably also as a “business opportunity” for themselves.
Climate change is still a controversial topic for some people, and it is not a simple matter – after all, we are talking about developments over the next thirty to sixty years. This leads to great uncertainty and does not make it easy to deal with the subject. This is where education and communication can make a big contribution. It is important to present the problems in an explanatory way and to show possible solutions, as well as costs and opportunities, for companies.
What we also saw in our study is that there is a difference between large and small companies in terms of the level of knowledge about sustainability. Small companies have fewer opportunities and resources to deal with the issue. A large company can employ a sustainability manager – a five-person company cannot. This also makes a big difference in the level of knowledge. Therefore, the most obvious political measure is to strengthen this transfer of knowledge. This also helps companies that do not have the resources themselves to deal intensively with the topic.
Business Sustainability Today:What do you think it will take, in terms of awareness or infrastructure, for the majority of Swiss companies to focus their business models on environmental and social sustainability, even apart from the net zero target?
Alessandro Bee:If you look at how sustainability is developing in the corporate world, you see that great success stories take on a certain momentum of their own. I think this is where we should start. Companies should be inspired to ‘jump on the bandwagon’. The automotive market is a good example. While Elon Musk was laughed at a few years ago, today we know that he has transformed the car market. All the major car manufacturers are following suit and increasingly adopting electric mobility. This can be imitated in other areas, with more promotion of and attention to success stories in different industries. Communication and attention alone, however, are not enough – they are auxiliary tools, not a substitute for bids or incentives.
Business Sustainability Today:How can innovations be promoted and how important are cleantech and climate tech for Switzerland?
Alessandro Bee:Cleantech is an established, important industry, with around 200,000 jobs in Switzerland, according to the Swiss Federal Statistical Office, and involves a wide range of solutions, from energy efficiency to resource conservation. Climate Tech is about CO2 reductions.
Switzerland could take a leading international position in both sectors, for example in energy storage using hydropower. Switzerland could also distinguish itself with innovative solutions in the field of solar energy (where the Confederation would like to focus in the next few years) and export these solutions.
There are also opportunities in other industries: Tourism, for example, is a highly competitive market, but here too there is the potential to differentiate oneself with CO2-reduced tourism.
Business Sustainability Today:Do you have any advice for companies that want to be not only sustainable but also truly innovative and proactive on the road to 2050?
Alessandro Bee:If the authorities continue to work towards net zero, despite the rejection of the CO2 law, this means that sooner or later there will be massive changes in the regulatory framework both at home and abroad. Those who want to respond proactively should seize the opportunities in these changes early on. For example, in building services, stricter regulations will also open up new opportunities for construction companies. Moreover, not only regulations change, but also consumer preferences. Companies are challenged to reorient themselves and to anticipate future developments, on the regulatory as well as on the consumer level. In principle, net zero can be seen as a constraint or an opportunity. Many companies, as our surveys show, perceive it as a ‘win-win’, in the sense of: we are slowing down climate change and giving new impetus to our economy.
Business Sustainability Today:Can and should Switzerland focus on the topic of climate and net zero in isolation from other topics, or should it be addressed right away together with topics such as the implementation of a circular economy?
Alessandro Bee:I think for companies, a focus on net zero does not exist in isolation from other issues. Once a company sees sustainability as part of its strategy and corporate responsibility, it is more likely that they will look at other issues, such as recycling, and approach sustainability holistically.
Here, too, education and communication play an important role. In the case of large, listed companies, the external factors are important: what do shareholders want, what do consumers want? But in the case of small companies (often in the service sector), it is rather the attitude of the company owners and employees that is decisive. According to our survey, sustainability is part of the corporate philosophy for many small companies. Provided that these companies are clearly shown what the problems are, what the costs are, and what possible solutions exist, they may be even more motivated to take on various sustainability issues.
Business Sustainability Today:What is your assessment of the role and contribution of the financial sector on the path to net zero?
Alessandro Bee:There are two aspects here. On the one hand, the financial sector must reduce its own footprint in order to achieve the net zero target. The greater leverage, however, lies in how banks contribute to net zero with their investments and financing. Sustainable investment has now become established and there are various forms of it, be it along ESG criteria or by means of green bonds. In addition, banks can take sustainability criteria into account when financing projects or real estate. This makes sense insofar as a bank is interested in ensuring that its borrowers continue to comply with current (environmental) regulations in ten or fifteen years’ time and that the value of real estate, for example, remains stable. Banks can use these tools to help companies transform their operations towards net zero.
1 according to the entrepreneur survey on sustainability for Swiss companies conducted in March 2021; © Photo: UBS