The race to net zero is on

The PwC study “Net Zero Economy Index 2021” reaffirms that all countries need to significantly increase their climate actions to avoid disaster. The private sector will play a key role, and Swiss companies need to develop a clear, science-based strategy for their net zero transformation.

The course for our path to climate neutrality is currently being renegotiated: The COP26 UN Climate Change Conference taking place in Glasgow focuses on the way forward to address and mitigate the impact of climate change. But it also puts a spotlight on the fact that the world is far off its path to reach its goal of holding the increase in global temperatures to well below 2°C above pre-industrial levels. Countries have therefore been asked to revise their NDC (national determined contributions) before COP26 to stay in line with a 1.5°C target. Despite the largest ever mobilisation of state and non-state entities committing to net zero, significant emission gaps remain which need to be addressed in the coming years.

These gaps were also confirmed by a recent PwC study, the “Net Zero Economy Index 2021”, which tracks energy-related CO₂ emissions worldwide and illustrates that the G20 member states represent 80% of global GDP and about 75% of global emissions. It provides an analysis of their current rates of decarbonisation compared to scientifically proven requirements for a 1.5°C aligned net zero world by 2050. The study provides many alarming and just a few promising insights on decarbonisation. For example, the global rate of decarbonisation – the reduction in carbon intensity or energy-related CO₂ emissions per dollar of GDP – needs to increase from currently 2.5% to 12.9% per year to achieve the 1.5°C goal.

On the European level several political changes are also expected: Against the background of the “European Green Deal” and in its effort to redirect financial flows, the EU is reviewing its carbon pricing and energy taxation, expanding its Emission Tradings System (ETS) to buildings and transportation, reducing allowances, creating a carbon cap adjustment mechanism, and increasing energy taxes. Different frameworks and commitments are to be aligned – with yet unclear consequences for Swiss companies.

How does this affect Switzerland?

In addition to all these international changes, the political discussion also continues at the national level in Switzerland: After the rejection of the CO₂ Act in June 2021 by the Swiss electorate, the Federal Council is now trying to patch up the existing law to stay in line with the Paris Agreement. The so-called “Gletscher-Initiative” (glacier initiative), submitted by the Swiss Association for Climate Protection (Verein Klimaschutz Schweiz) in November 2019, is currently in the parliamentary process. The initiative promotes net zero until 2050 and the ban of fossil fuels in case there are alternatives. In September 2020, the Federal Council published a direct counterproposal, suggesting to include net zero in the constitution but without prohibiting fossil fuels. The UREK-N commission of the National Council submitted a “weaker” indirect counterproposal in October 2021, with no ban of fossil fuels and no constitutional amendment. Now, its sister commission of the Council of States must decide on the counterproposal. The popular vote is scheduled to take place in 2023/24.

All these policy changes at international and national levels are heavily impacting Swiss businesses and will sooner or later mean that Swiss companies will have to respond. 

The private sector and PPP will be playing a key role

As it becomes clearer that public financing is not enough, the private sector is expected to become a major driver in reaching global climate-related goals. Not only is the COP26 currently discussing how best to involve the private sector in a financing scheme, but PwC’s “Net Zero Economy Index 2021” also underscores its importance.

The report states clearly: policy breakthroughs are needed across all economic sectors, with effective implementation, clear milestones, and accountability – and the private sector will have to play a crucial role. Private companies are increasingly pursuing more aggressive measures to reduce emissions. In the last 18 months, there was an unprecedented number of net zero commitments, and more than 3000 businesses are now part of the UN “Race to Zero” campaign and are also influencing the supply chains. However, progress needs to happen much faster. 

To accelerate the transition and stimulate further action from the private sector, collaboration between sectors and across industries is needed, and public-private partnerships (PPP) are vital. Given the nature of infrastructure ownership and the need to attract further private investment – not only globally, but particularly in emerging markets –, PPP will be key.

PwC recommends: set clear targets and join alliances

Despite the rapid political changes on all levels, the general awareness among Swiss companies for climate-related, regulatory risks is still insufficient. Especially large organisations with business activities outside of Switzerland need to consider international developments as some of their major operations might be affected by regulatory chances and taxes abroad. They need to get a holistic view of the possible impacts of sustainability policies and tax developments on their business operations and supply chain.

PwC encourages Swiss companies to proactively develop a clear strategy for their net zero transformation. As a first step, science-based targets need to be set by companies. Committing to alliances and recommendations, such as “Race to Zero”, the International Society of Sustainability Professionals (ISSP), or the Taskforce on Climate-related Financial Disclosures (TCFD), provides organisations both insights and incentives to reach their goals. Financial institutions should commit to responsible investing by joining platforms – or choosing partners who adhere to the guidelines of these platforms – such as the Net Zero Asset Managers Initiative, the UN Principles for Responsible Investment (PRI), the UNEP FI Principles of Sustainable Insurance (PSI), or Swiss Sustainable Finance (SSF).

Furthermore, investing in new, innovative technologies that enable to reach net zero is one of the most effective approaches. Swiss companies are in an especially good position to drive innovation and investments in research and development of clean power or negative emission technologies (e.g. carbon capture, utilisation and storage technologies), due to an excellent university landscape and start-up ecosystem. As Switzerland has recently been excluded from EU research funding, Swiss multinational companies could benefit from specific funding or tax incentives by using EU entities to apply for funding. In addition, they could investigate for which funding they could be eligible across the globe due to their footprint.

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