Who needs to do what in the climate transition effort? The banks shouldn’t have to fill the gap in political will
What is the role of banks in the climate transition? In an era of questioning public sustainability policies, redirecting financial flows to support climate transition efforts is essential, but it cannot replace the political will and regulatory obligations that must come with it.
An example of shifting responsibility to banks is the Swiss Banking Association (SBA) guidelines for mortgage providers on energy efficiency in buildings, implemented in 2023. The guidelines ask banks to have with clients an advisory conversation about energy retrofits that would make sure the future value of the property is preserved (or increased). This conversation should include information about the public subsidies available to the customer.
Although these guidelines are a step in the right direction, in order to encourage owners of primary and secondary residences to improve the energy efficiency of their buildings, one can wonder about the growing share of obligations that rely on banks rather than public institutions, in terms of energy transition policy. How, for example, can we have a conversation that makes sense if energy performance assessments for buildings are not mandatory in all cantons? What renovations can be made accessible to the greatest number of people if state subsidies in this area is very low in certain cantons?
Banks play a crucial role in the climate and environmental transition, but this must not be decoupled from, or, worse, replace the political will that should be accompanied by consistent and long-term public policies.
European regulation through CRD6 requires banks from 2026 onwards to have a transition plan covering different horizons, including long-term planning of at least 10 years. Banks are required to explain the implications of the planned reduction of their carbon emissions on their product and service offerings, pricing, and counterparty engagement strategy. Similarly, in Switzerland, the Climate Transparency Ordinance requires companies subject to Article 964 of the Code of Obligations to put in place transition plans that are compatible with Switzerland’s Net Zero by 2050 climate objectives.
These demands can be contrasted with governmental fossil fuel subsidies, which remain substantial in many countries: the G7 committed to phase out “inefficient” fossil fuel subsidies by 2025. In 2023, the last year for which OECD estimates are available, G7 members’ fossil-fuel subsidies reached a record high of $282 billion. By comparison, in 2016, these subsidies amounted to $71 billion. In Switzerland, the OECD estimated the fiscal cost of fossil fuel support measures at CHF 2.17 billion in 2022. 84% went to end-users, compared with 16% to businesses, with support provided in the form of tax deductions (for business trips for instance). And with every energy crisis like the one triggered by the war in Iran, panic quickly becomes the main driver for decisions like de-taxation of oil and even proposals to suspend carbon taxation.
Likewise, taking the train remains more expensive than flying in Europe in 54% of cases, according to a Greenpeace Europe study published in August 2025, because kerosene used by planes is not taxed while rail operators are subject to electricity, VAT and high track access charges in many countries.
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These contradictory trends do not make it easy for banks to support the transition, not to mention countries where complete reversals of public policy on the subject are destroying many efforts made on the subject.
What should we wish for ahead of COP 31?
Government policies to encourage renewable energies going beyond political posturing, concrete follow-up to the major announcements made at the COPs with ambitious regulations, and a long-term change of direction for tax policies and subsidies.
And beyond long-term policy commitments combined with a stable regulatory framework, financing the energy transition requires closer collaboration among public institutions, investors, and financial institutions, as the Building Bridges conference in Geneva highlighted in October 2025. Better cooperation enables the development of public-private partnerships and new blended finance mechanisms that can reduce systemic risks, including political, regulatory, economic, and technological risks associated with green projects. Thus, the partial transfer of risks to public entities is a key step in helping to secure the financing and therefore deployment of green technologies. Similarly, the participation of public financial institutions in initial investments enables economies of scale to be activated.
In short, banks have a vital and indispensable role to play in the environmental transition, and they are ready to play it, but they will not succeed on their own.
The political will is irreplaceable if we want to deal with the climate emergency. Policies need to clearly define the public interest and impose rules in this area:
· reducing subsidies and taxes that run counter to transition and decarbonization,
· improving public databases on physical risks and carbon emissions from buildings,
· removing the barriers to public derisking of private finance.
And that creates the right environment for banks to steer capital towards a decarbonized economy that respects planetary boundaries!
