Policies on climate change and net-zero continue to gain momentum.
In June, the Swiss electorate accepted the proposed Climate and Innovation Act, the parliament’s counterproposal to the popular private-citizen effort called the Glacier Initiative. The approved measured provides a glimpse of how countries may drive corporations to adopt net-zero goals. To achieve net zero, the act outlines three core objectives: a reduction in greenhouse gas emissions paired with increased application of “negative emission technologies” (i.e., carbon capture, utilization, and storage [CCUS]); adaptation and protection against the effects of climate change; and alignment of financial flows with low-carbon technologies.
The act puts the country’s net-zero objectives into law, including intermediate targets: Relative to 1990, Swiss emissions must be 75% and 89% lower by 2040 and 2050, respectively. These targets will require rapid decarbonization—much faster than observed in the past 30 years, when the target was 20% decarbonization by 2020 (which was narrowly missed). To that end, the act outlines intermediate decarbonization targets for the building, transportation, and industrial sectors, and requires businesses in Switzerland to be net-zero by 2050. As of this writing, the Science Based Targets Initiative reports that 54 companies in Switzerland have committed to setting net-zero targets, while only 11 have verified (long-term) targets. Swiss stocks are weighted at 2.5% and 16% of the MSCI All Country World and MSCI Europe indexes, respectively.
The Swiss Climate and Innovation Act, following the US IRA and the EU Green Deal Industrial Plan, prioritizes the carrot-over-stick approach to driving decarbonization. While Swiss voters in 2021 rejected an increase of carbon taxes on industries like aviation, the new law puts CHF 1.2 billion into funding industrial decarbonization and CHF 2 billion into replacing heating systems run on fossil fuels in buildings.
Accelerating investments into carbon capture technologies continues to be a core element of many countries’ net-zero plans. Like in other countries, the Swiss net-zero plan relies on negative emission technologies to neutralize the remaining 11% of emissions, or about 5 megatons of CO2 equivalent. With global carbon capture capacity currently at approximately 45 megatons of CO2e, capacity will need to expand rapidly. The US IRA, Canadian federal budget, and regional European programs all provide critical (investment) tax credits and incentives to accelerate CCUS investment.
Takeaways for investors:
While countries are counting on CCUS to reach their net-zero targets, these technologies should prioritize offsetting emissions from hard-to-abate sectors (e.g., cement).
Opportunities remain for investors in themes like “Clean air and carbon reduction,” “Smart mobility,” and “Energy efficiency,” where taking a diversified approach across regions and sectors is key.