Major Swiss banks say they are looking to cut their exposure to carbon sensitive sectors as pressure grows globally to combat climate change.

Credit Suisse and UBS are sanguine about their potential exposure to stranded assets as a result of the energy transition, they told finews.com in response to emailed questions.

Like their global peers the two banks are caught between the rock of historic lending to to fossil-fuel-based sectors and the hard place of green lending only being in its infancy.

Credit Suisse said that it had decided not to provide any lending or capital markets underwriting to companies deriving over 25 percent of their revenues from thermal coal extraction or from coal power, unless the transaction specifically helped the company decarbonize.

UBS said: «We have, so far, not identified significant climate-related financial risk on our balance sheet. We explain this by UBS’s relatively small lending book in climate-sensitive sectors...and availability of insurance where we have relevant exposures to such sectors (e.g., Swiss mortgage lending book).»

Historic Lending to Oil, Gas

A recent survey by Bloomberg showed, however, that over 2016-20, both banks issued more debt for oil and gas companies than they did green and sustainable bonds: Credit Suisse issued $26 billion in oil and gas bonds, almost four times the $7 billion in green bonds it issued. UBS issued $11.4 billion in corporate bonds for oil and gas companies, nearly double the $5.8 billion in green bonds.

In response Credit Suisse told finews.com that its oil and gas exposure had been on a downward trend since 2015, «allowing increased lending to support the energy transition».

«By rolling out our sector-specific Client Energy Transition Frameworks (CETFs) in 2020, we have started to assess the transition readiness of our clients’ businesses in the most climate sensitive sectors (oil and gas, coal mining and fossil fuel-based power generation). We have now expanded the framework to also cover shipping, aviation and commodities trade finance. The financing restrictions for thermal coal extraction and coal mining, and the application of the Client Energy Transition Frameworks to these priority sectors, will further drive down our exposures to high-carbon and climate-sensitive businesses,» the bank said.

Redressing lending balance

Credit Suisse added that in 2020, it announced a goal of providing at least 300 billion francs ($334 billion) of sustainable financing to support transition strategies over the next ten years.
UBS said its exposure to carbon-related assets on its banking balance sheet was low, at 1.9 percent or $5.4 billion as of December 31, 2020, a fall from 2.3 percent at the end of 2019 and 2.8 percent at the end of 2018.

«Reducing high-carbon positions on the balance sheet is more important than simply cutting exposure to climate sensitive sectors such real estate. We don’t serve the community better by reducing real estate lending, rather, by making real estate lending greener. This logic does not apply to high-carbon sectors, where reduction of exposure may be needed,» the bank said.

The Bloomberg survey showed that 35 percent, or $13.4 billion, of UBS’ loans book’s exposure to what the bank terms «climate sensitive» industries was to real estate. The bank declined to comment on any plans to increase green lending.

 

(Image: Keystone)

Key Swiss Vote

Switzerland is due to hold a referendum on amendments to the CO2 law on June 13. The law envisages a rise in taxes on fossil fuels, a levy on flights, a ban on the installation of fossil-fuel heating in new buildings as well as tax incentives for businesses to reduce their carbon foot print. As members of the Swiss Bankers Association, both banks support the law.

«The Swiss Bankers Association has set itself the goal of positioning financial centre Switzerland as a leading international hub for sustainable finance and of supporting optimal conditions. For this reason the financial sector fully backs the aim of the CO2 law of harmonizing finance flows with goal of moving towards low emissions and resistance to climate change,» the industry association said (in German).

The latest poll from Swiss broadcaster SRF (in German) shows 53 percent support for the CO2 law, down from 60 percent earlier in the campaign.