5.3 Strategy
Sustainability is at the core of Schwyzer Kantonalbank’s mission and purpose. This is derived, among other things, from the Schwyzer Kantonalbank Act, which states that SZKB must contribute to the balanced and sustainable development of the Canton. The SZKB sustainability strategy comprises all dimensions of E, S and G. Climate change is addressed and embedded in the Bank’s sustainability strategy by means of appropriate objectives and measures.
Climate change is a growing challenge for the financial sector. Climate risks or nature-dependent financial risks in general can affect credit portfolios and investments, while sustainable financing opens up new business opportunities. Regulatory requirements, increasing stakeholder expectations and long-term profitability make it necessary to integrate climate issues into the strategy. The SZKB sustainability strategy considers climate change to be of material significance and takes account of climate issues as well as other sustainability aspects.
At SZKB, climate change is not regarded as a new risk category, but rather as a risk driver that applies to risk categories such as credit risks, market and liquidity risks, operational risks and strategic risks. Events associated with the climate change risk driver are differentiated into physical risks and transition risks.
Physical risks generally result in an increase in damage due to climate-related acute events (in particular natural disasters or natural events) or long-term developments (e.g. changes in vegetation zone, snowfall boundary, thawing of permafrost).
Transition risks arise from political changes, such as due to regulatory intervention like the introduction of a carbon tax, the prohibition of certain technologies (e.g. certain types of heating) or social changes (e.g. changing demand behaviour).
With the specific involvement of other internal employees, the Sustainability Office conducts an annual assessment of ESG risk drivers, which is reviewed by the Risk Management department and approved by the Sustainability Committee. The main ESG risk drivers are then allocated to the existing risk categories. As part of the annual risk assessments, these risk drivers are then in turn incorporated into the risk assessment of the risk categories, ensuring that the drivers are taken into account.
In the area of environment (including the climate), the following material ESG drivers have been identified:
Physical risks
- Natural events (flooding, storms, droughts/heatwaves, landslides, etc.)
Transition risks
- Carbon tax (climate legislation)
- Social change
- Prohibiting and/or promoting individual technologies
- Stronger shift in demand within the fixed-income asset class to green assets (green bonds)
- Inadequate analysis and integration of climate data into processes
- Fines imposed by regulators
- Greenwashing
- Inadequate corporate governance
Overview of the 2024 risk assessment
At SZKB, the time horizon for assessing climate-related opportunities and risks is broken down into short-term, medium-term and long-term.
| Short-term | 0 to 5 years |
| Medium-term | 5 to 10 years |
| Long-term | 10 to 30 years |
The key ESG risk drivers have an impact on credit and liquidity risks as well as operational and strategic risks. They are listed below.
Climate-related risks
The risk analyses carried out show that SZKB is increasingly being exposed to physical climate-related risks, especially over the long term. Physical risks brought about by climate change will manifest more frequently in the future. These risks primarily relate to infrastructure elements and natural events, such as extreme weather events that could affect SZKB’s business processes and credit portfolio. SZKB expects these risks to become increasingly significant over the long term, as the effects of climate change become increasingly more apparent.
In addition to physical risks, SZKB is also confronted with transition risks that arise especially as a result of social and technological change in the context of adapting to a low-carbon economy. These risks affect all companies and are important both in the short term and in the medium term. Over a medium-term perspective, these risks tend to be even greater, as the introduction of new regulatory standards, technological innovations and social changes can give rise to adjustment pressures. Over the long term, however, when new standards are established and markets have adapted further, transition risks are expected to fade and companies will increasingly be able to rely on stable framework conditions.
Key ESG risk drivers
SZKB has identified the following climate-related risks over the short, medium and long term.
| Risk category | Physical risks | Transition risks |
| Credit risk | Natural events such as flooding or mudslides increase SZKB’s credit risk by reducing the value of assets held, generating income and revenue losses, triggering repair costs and disrupting production and supply chains. Companies in high-risk regions are particularly at risk, with SZKB being moderately affected by their exposure. Climate-related damage can affect the value of loan collateral such as real estate and securities. Natural events affect companies directly or indirectly and may also have an impact on their partners and SZKB. In Switzerland, damage to buildings is largely covered by compulsory building insurance, but this could change over the medium term. | The introduction of a carbon tax represents a credit risk for SZKB as it will lead to rising energy and commodity prices, resulting in higher costs for companies and homeowners. Carbon and energy-intensive industries are particularly affected, where an increased cost burden could impair solvency and lead to risks such as stranded assets, business model disruption and higher default risks. In addition, technological innovations and possible bans on certain technologies, such as fossil fuels, pose additional challenges. Companies and individuals could be burdened by higher investment costs, further increasing the credit risk. |
| Liquidity risk | Natural events such as flooding can increase the liquidity risk by increasing recourse to credit lines (active) and also reducing demand for demand and savings deposits (passive). Climate change influences in particular the withdrawal risk, as large-scale flooding could affect large numbers of clients at the same time due to geographic concentration in the Canton of Schwyz. This could lead to a significant withdrawal of deposits and increased strain on open credit lines, significantly increasing SZKB’s need for refinancing. | The introduction of a carbon tax represents a credit risk for SZKB as it will lead to rising energy and commodity prices, resulting in higher costs for companies and homeowners. Carbon and energy-intensive industries are particularly affected, where an increased cost burden could impair solvency and lead to risks such as stranded assets, business model disruption and higher default risks. In addition, technological innovations and possible bans on certain technologies, such as fossil fuels, pose additional challenges. Companies and individuals could be burdened by higher investment costs, further increasing the credit risk. |
| Operational risks | SZKB has not identified any material physical ESG risk drivers in the area of operational risks. | Transition ESG risk drivers have a significant impact on SZKB’s operational risks. There is a focus on topics such as inadequate corporate governance, regulatory violations, incorrect integration of climate data, greenwashing and the inadequate implementation of sustainability aspects. Breaches of regulations or delayed implementations of regulatory requirements can lead to fines, penalties, negative media reports and a loss of trust among clients and investors. SZKB operates within a dynamic regulatory environment where legal standards for sustainable financial products have not yet become fully established. A lack of definitions, such as a Swiss equivalent of the EU taxonomy, increases the risk of greenwashing. In addition, incorrect climate data and insufficiently adjusted business processes can lead to increased compliance risks. Temporary uncertainties regarding new reporting obligations create scope for interpretation, which can lead to rule breaches. Over the long term, clear market standards are expected to establish and reduce the risks mentioned. |
| Strategic risk | SZKB has not identified any material physical ESG risk drivers in the area of strategic risks. | Social change represents a key strategic risk for SZKB. The growing expectations of clients and society that companies will take on responsibility for dealing with climate change and ESG issues are increasingly influencing the perception of and demand for products and services. Companies that neglect these developments risk experiencing a drop in demand as well as a long-term loss of market and competitive relevance. Insufficient engagement with ESG issues can also lead to reputational damage and limit the ability to cater to all client needs. |
Climate-related opportunities
SZKB has identified the following climate-related opportunities over the short, medium and long-term.
| Opportunity | Description |
| New business areas and products | Tackling climate change opens up a wide range of opportunities for SZKB to tap into new business areas and products. In particular, the development and offering of «green» loans, sustainable investment products and ESG funds offer the Bank an opportunity to generate additional sources of income. In the building sector, the potential will arise through the financing of building renovations and the replacement of fossil-fuel heating systems. These measures not only support the energy transition but also bolster SZKB’s position. |
| Energy efficiency and cost reduction | Investments in energy-efficient buildings, technologies and processes will enable SZKB to reduce its operating costs over the long term. The increasing use of renewable energy not only helps to cut costs but also raises environmental awareness within the workforce and underscores the Bank’s commitment to sustainable business. |
| Fostering sustainable entrepreneurship | SZKB sees further opportunities as we move towards sustainable production methods and processes. Companies will increasingly invest in sustainable innovations, such as recycling or other circular business models. SZKB is currently examining whether and to what extent targeted financing could be considered for projects or companies that potentially offer social or environmental benefits. Such measures have not yet been implemented, although in future they could strengthen the position of SZKB as a trusted partner for sustainable financing, thereby attracting new clients and consolidating existing client relationships. At the same time, financing according to social and environmental criteria makes an important contribution to social and ecological transformation. |
The strategy’s resilience to climate scenarios
As part of the risk inventory, a qualitative assessment of ESG risk drivers was carried out. The assessment is supplemented by scenario analyses and calculations for the risk category with the highest exposure. Due to increased relevance, in 2023 SZKB engaged more with credit risk in relation to clients and carried out a scenario analysis in the areas of mortgage business and corporate clients concerning the transition risk "carbon tax on client loans". The other risk categories were comparatively less affected, and as a result no further scenario analyses were carried out. The results of the scenario analyses demonstrate that expected losses increase only marginally. The materiality of the scenarios must be classified in such a way that the realisation of the scenario would have a tangible effect on SZKB but would not pose an existential risk. As SZKB’s credit portfolio has not changed significantly, the same approach will also be applied for 2024. For assessments of long-term developments, initial tests were carried out using quantitative scenario analyses, although further analyses and clarifications will be carried out in future in order to validate these and increase their reliability.
The impact of climate-related risks and opportunities on the business strategy
SZKB recognises climate-related risks and opportunities as key drivers that affect both strategic orientation and financial planning. The targeted integration of sustainable approaches not only creates the potential to set the Bank apart from its competitors but also makes it possible to effectively reduce long-term risks and proactively address rising regulatory and social requirements.
In order to take climate-related risks into account systematically, SZKB will continue to develop its risk management processes so as to capture and quantify these risks more precisely. This may require an increased creation of provisions as well as the consideration of prospective future market fluctuations and regulatory requirements in liquidity planning. At the same time, growth forecasts in the area of sustainable products are opening up promising prospects, which are actively integrated into strategic decision-making processes.