SNB collateral framework ignores climate risk, study finds

The Swiss National Bank (SNB) has been accepting collateral assets that pose a significant risk due to climate change and biodiversity loss, contrary to the bank’s own rules and against a climate law voted on by the Swiss earlier this year, a new study has found.

The study from advocacy groups Klima-Allianz Schweiz and Unsere SNB found that the central bank listed Shell and regions that benefit from tar sands mining in its collateral framework for repo-eligible securities.

The SNB does not consider environmental factors when selecting eligible assets for its collateral framework, although the Network for Greening the Financial System, of which it is a part, has indicated that central banks should take climate risks into account.

It also goes against the Climate and Innovation Act that Swiss voters approved in June, the advocacy groups said.

“The SNB is accepting securities from companies as collateral that exacerbate the climate and biodiversity crisis. In doing so, it is sending the wrong signals to financial market participants and supporting the growing climate catastrophe instead of the climate goals approved by the Swiss population,” said Asti Roesle, senior project manager at Klima-Allianz Schweiz.

The report highlights six case studies that focus on environmental relevance or interest, including companies such as Shell, Nestlé and Novartis, as well as Canadian banks, government bonds and deforestation. These entities have been broadly recognised as among the worst environmental-performing issuers, the report said.

The group analysed the SNB’s instruction sheet on collateral eligible for repos, and then reviewed the central bank’s general collateral basket. The basket was filtered so that only issuers were visible. The study found that of the 198 issuers, 127 were from sovereign countries or corporations. These were then matched with the results of an environmental analysis.

The report found that the basket has a carbon bias, with climate and biodiversity-damaging issuers still receiving favourable credit conditions. The report authors say this sends “a clear market signal to the financial actors, indicating that negative environmental performance is not a financial risk (against scientific evidence) and thereby prolongs the status quo of the economy, and transition risks are increased”.

Klima-Allianz Schweiz and Unsere SNB recommend that the Swiss central bank includes climate and biodiversity in its eligibility criteria, as well as include an exclusion list including assets from Shell, Canadian banks, and four Canadian regions with tar-sands mining.

The central bank should also follow Switzerland’s goal of aligning financial flows in a climate-friendly manner, as set out by the climate and innovation act, the groups said.

A 2021 study found that SNB assets are responsible for 23% to 38% of Switzerland’s domestic CO2 emissions. While the country has voted to reduce emissions, studies have shown that its current policies are not consistent with its 2050 target to achieve carbon neutrality.