1 Disclosure of the methodological basis

The following general requirements are relevant for SZKB’s 2024 sustainability reporting:

• In accordance with the Swiss Code of Obligations (CO), SZKB is obliged to report on non-financial matters starting from financial year 2023.
• SZKB has prepared its 2024 sustainability reporting in accordance with the standards of the Global Reporting Initiative (GRI).
• Reporting on climate issues (climate reporting) is based on the requirements of Swiss legislation (non-financial matters pursuant to Articles 964a et seqq. CO) and the regulatory requirements of the Swiss Financial Market Supervisory Authority (FINMA). SZKB prepares its climate reporting in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), which have been incorporated into the new IFRS Sustainability Disclosure Standards of the International Sustainability Standards Board (ISSB).
• SZKB calculates financed emissions in accordance with the PCAF standard.
• In this Sustainability Report, the terms CO₂ and CO₂ equivalent (CO₂e) are used interchangeably.

Notes 3 and 4 feature an index for the requirements "Reporting on non-financial matters in accordance with the Swiss Code of Obligations" and "Reporting in accordance with GRI (GRI Index)", which shows where the information pertaining to the points to be reported can be found in the Sustainability Report.

SZKB employs targeted concepts for reporting on individual, specific matters.

1.2.1 Definition of CO₂ emissions

CO₂ is a key driver of climate change. In addition to the greenhouse gas carbon dioxide (CO₂), there are other greenhouse gases such as methane and nitrous oxide. The different gases do not contribute to the greenhouse effect to the same extent and remain in the atmosphere for different lengths of time. In order to make the effect comparable, the unit of measurement CO₂ equivalents (CO₂e) was created to standardise the climate impact of the various greenhouse gases.

1.2.2 CO₂ emissions Scope 1, 2 and 3

The terms "Scope 1", "Scope 2" and "Scope 3" play a role in CO₂e reporting. The following applies:

• Scope 1 comprises direct greenhouse gas emissions that originate from sources that are under the company’s control or within its sphere of influence. This typically includes emissions from the combustion of fossil fuels such as gas or oil in our own facilities or vehicles.
• Scope 2 comprises indirect greenhouse gas emissions resulting from the purchase of external sources of electricity or thermal energy.
• Scope 3 encompasses all other indirect emissions of greenhouse gases that are not included in Scope 1 or Scope 2. These are emissions that occur along the entire value chain of a company, including suppliers, clients, transport, disposal and product use.

SZKB distinguishes between financed emissions and operational emissions for its CO₂e emissions.

1.3.1 Financed CO₂ emissions

SZKB calculates financed emissions in accordance with the PCAF standard. The acronym PCAF stands for «Partnership for Carbon Accounting Financials». PCAF is a global initiative that was launched in 2019 with the primary objective of developing uniform standards and methods for accounting for greenhouse gas emissions. This will allow banks in particular to quantify their emissions, develop targets for reducing emissions and communicate their progress in a transparent manner.

PCAF defined seven primary categories for accounting for greenhouse gas emissions in the financial sector. The categories are:

• Listed shares and corporate bonds
• Corporate loans and unlisted equity
• Project financing
• Commercial property
• Mortgages
• Motor vehicles
• Public debt

The PCAF categories of projects and financing of motor vehicles are not material for SZKB because SZKB does not engage in this type of business. In the area of leasing, however, SZKB refers clients to a specialised partner company.

Methodological approach
As part of the PCAF standard, emissions are recorded and calculated according to the following steps:

1. Data sources and data collection
   1. Emission data (Scope 1, Scope 2 and, where applicable, Scope 3) are collected by reporting companies or determined on the basis of sector-specific estimating models. SZKB does not yet have any effective emission and energy consumption data from financed companies and real estate, and therefore uses emission factors provided by PCAF.
   2. Non-reporting companies are evaluated using industry-specific models and financial or operational metrics.
2. Allocation of emissions
   1. Emissions associated with investee companies and loans are allocated according to the share of the investor or lender in the financing activity.
3. Consideration of data quality
   1. According to PCAF requirements, data quality is assessed according to a five-level system, ranging from the highest level (directly reported emissions) to the lowest level (estimates based on generic sector data).
   2. For the sake of transparency, the data quality used is disclosed in the SZKB Climate Report.
4. Scope 3 emissions
   1. For companies operating in emission-intensive sectors, Scope 3 emissions are also taken into account, provided that sufficient data are available, and such data are relevant for SZKB.
   2.  This estimate is based on the sectoral profiles and models provided by ISS ESG. SZKB uses the emission factors provided by PCAF for financed emissions.

1.3.2 Measuring financed CO₂ emissions in the financing area

SZKB calculates greenhouse gas emissions in its lending portfolio (Scope 3, Category 15). Emissions are calculated in accordance with the global standards of the Greenhouse Gas Protocol (GHG) and the requirements set out in the PCAF. SZKB allocated its financing portfolio to the following PCAF classes:

• Mortgages (owner-occupied residential property and condominiums)
• Commercial properties (outstanding mortgage financing with mortgage liens, excluding agriculture)
• Corporate financing (other loans, including agriculture)

These allocations differ from the definitions typically used at SZKB.

Although SZKB also provides individual financing in the energy sector, SZKB has simplified its presentation by grouping this activity in commercial real estate and corporate financing due to the low volume of this business.

The emissions intensity shown pertains to the Scope 1 and 2 emissions from financing. SZKB currently only calculates Scope 3 emissions of financed emissions in relation to corporate financing.

Mortgages and commercial real estate
The financed emissions for the mortgages and commercial properties have been calculated using the emission factors in kgCO₂/m² (PCAF score 4) for 2020 provided by PCAF (in accordance with PCAF’s recommendation, as more recent factors still have a provisional status). Areas contained in the Bank’s estimates are used when applying emission factors. The annual building emissions are determined by multiplying the surface area by the emission factor. The share of SZKB corresponds to the outstanding loan amount as a proportion of the market value.

In cases where areas were missing, external public data sources were used for the calculation. Whenever the data for the calculation was still incomplete, average values based on the known values were derived and applied. The PCAF Data Quality Score reflects the average quality of the data used. The emissions intensity shown pertains to the Scope 1 and Scope 2 emissions from financing.

The following methodological changes were rolled out in 2024:

• Mortgage financing of agricultural real estate will now be allocated to commercial real estate. Operating loans remain under corporate loans.

Corporate financing
Financed emissions for corporate financing were determined according to the emission factors provided by PCAF in terms of kgCO₂e per thousand CHF of turnover (PCAF score 4) or kgCO₂e per thousand CHF of assets (PCAF score 5). According to the PCAF recommendation, emission factors for "advanced economies" are adopted at the sectoral level. The PCAF provides separate emission factors for Scope 1, Scope 2 and Scope 3.

If the company’s turnover and balance sheet data are available, turnover is multiplied by the emission factor for the specific sector (PCAF score 4). The calculated total emissions of the company are imputed to the SZKB balance sheet total in proportion to the outstanding loan. If no turnover or accounting data was available for the companies, the emissions were computed using the PCAF score 5 calculation methodology. The current loan drawdown is multiplied by the emission factor for the specific sector (PCAF score 5), and the financed emissions calculated are imputed in full to SZKB.

The following methodological changes were rolled out in 2024:

• Blank örK financing from corporate financing excluded (PCAF does not have emission factors for cantons, districts or municipalities but currently only at state level).
• Mortgage financing of agricultural real estate will now be allocated to commercial real estate. Operating loans remain under corporate loans. This is in line with the approach to commercial financing.
• For holding companies, financing has been divided up among the operating companies wherever possible.
• By adhering to the PCAF, SZKB now has access to its emission factors. According to the PCAF recommendation, figures for «advanced economies» are adopted at sectoral level. During the previous year, an input/output model developed by a consulting firm was used to calculate emission factors.

Due to these changes, SZKB is restating last year’s calculations as of 31 December 2022.

1.3.3 Measuring financed CO₂emissions in the investment area
(including own financial assets)

At present, the collection and measurement of CO₂ emissions in the investment sector is primarily carried out in the areas in which the Bank has a direct influence on the investment decision. In this context, the Bank measures CO₂ emissions associated with its ethical line. SZKB pursues a methodical approach that makes it possible to quantify and monitor CO₂ emissions in the portfolio.

Recording of emissions in the investment sector
SZKB uses data from the sustainability specialist ISS ESG to assess sustainability indicators, with a focus on climate metrics. ISS ESG is a subsidiary of the Institutional Shareholder Services (ISS) Group, which was founded in 1985 and specialises in ESG solutions.

The ISS ESG methodology for measuring and assessing the climate footprint of investment portfolios includes various sector and sub-sector-specific models. This allows a special focus to be placed on factors that are especially pertinent to the specific business sector.

The ISS ESG methodology consists of the following steps:

1. Compilation of the emissions reported by the company itself: Various public sources are used for this purpose, such as sustainability reports, Bloomberg surveys, CDP and investor relations.
2. Evaluation and validation of this information, with the possibility of discarding if necessary. The data points received are checked for their trustworthiness using criteria such as discrepancies with historical data, discrepancies between sources, external validation and company experience in climate data collection.
3. Estimate of emissions from companies that do not provide information about their own greenhouse gas emissions: Sector- and sub-sector-specific models are used for this purpose.
4. Assessment of Scope 3 emissions: Depending on the company-specific sector profile, the Scope 3 emissions of each company are modelled with a) a bottom-up approach focused on the value chain, b) a top-down approach focused on the product or c) a peer group-oriented process.
5. Allocation of corporate emissions to portfolios: Greenhouse gas emissions of companies are allocated to their investors on a pro rata basis in accordance with the «ownership principle», similar to how company assets are allocated. The TCFD recommendations are used to determine the weighted greenhouse gas intensity. For this purpose, the emissions per sales dollar are multiplied by the specific company’s portfolio share.

Limits on recording
The current focus on measuring CO₂ emissions relates exclusively to investments in which the Bank has an influence on decisions relating to the use of capital. This means that investments in asset classes in which the Bank has a limited ability to influence emissions sources are not included.

1.3.4 Measurement of operational CO₂ emissions

Direct and indirect CO₂ emissions are documented in SZKB’s carbon footprint. Due to business-related delays in reporting by data suppliers that are primarily external, the carbon gas footprint does not refer to the same reporting year as the Sustainability Report, but instead to the previous year in each case.

Emission sources
In addition to Scope 1 and Scope 2 emissions, SZKB also reports parts of its Scope 3 emissions associated with operations in accordance with ISO 14064-1 and the Greenhouse Gas Protocol. The following table provides an overview of the emission sources that fall under Scope 3 in SZKB’s operational carbon footprint:

In 2024, SZKB did not purchase any CO₂ certificates or engage in emissions trading, and there were no reductions in production capacity or significant instances of process outsourcing.

Emission factors
The emission factors used by Swiss Climate that can often change in line with new findings have a major impact on the calculation of the carbon footprint.

Emission factors have changed as follows:

^* Various emission factors are used to calculate the CO₂ emissions associated with electricity. A number of adjustments were made to them in 2023, but these are not deemed to be significant. With regard to the electricity mix, data and information on the respective electricity products were queried at all locations (hydropower, Swiss electricity mix, etc.). A conservative assumption (market-based, i.e. Swiss electricity mix) was made for locations that did not have precise information on electricity products (e.g. for external cashpoints).

Under the terms of the Ordinance on Reporting on Climate Matters, SZKB is obliged to publish a transition plan that is comparable to Swiss climate targets. In line with the Paris Climate Agreement¹, Switzerland has set itself a long-term climate target of "net zero" by 2050 and an intermediate target of –50% by 2030. Switzerland has complied with this agreement by adopting the Federal Council decision in August 2019 to reduce Switzerland’s greenhouse gas emissions to net zero by 2050.

The resulting climate strategy stipulates an interim target of a 50% reduction in greenhouse gas emissions by 2030 compared to 1990 levels. A climate fund is intended to finance work on buildings and the fostering of technologies that can help achieve a reduction in greenhouse gas emissions. The imposition of CO₂ levies creates incentives to switch to low-carbon and CO₂-free energy sources. The largest savings in greenhouse gas emissions by 2050 are expected to come from the building sector at 16.3 MtCO₂ – a 98% reduction.

1.4.1 Transition plan: financed CO₂ emissions in the financing business

SZKB is guided by the Swiss climate targets in regard to the transition plan for financed CO₂ emissions in the financing business. The transition plan can thus be derived in a top-down fashion from the trajectory of the Swiss Climate Strategy. A bottom-up analysis was carried out in order to put the reduction pathway on an operational footing so as to be able to derive key figures and potential measures for the required portfolio development. As emissions are the next major milestone on the pathway to net zero by 2030, the 2030 target will be a greater focus – both in selecting the modelling of parameters (availability, interpretability) and for the potential measures under consideration.

When establishing the transition plan, SZKB distinguishes between the "business as usual" (BAU) and "ZERO basis" scenarios and has committed to the ZERO basis scenario. Under this scenario, the following assumptions were made:

• CO₂ price is formed freely within the emissions trading system with the EU
• CO₂ levies on fuels from sectors outside the European emissions trading system (ETS)
• CO₂ levy on fuels, building subsidies, CO₂ requirements in transport
• By 2030 additional CO₂ levies on fuel
• No expiry of the measures

Already under the BAU scenario, there has been a sharp decline in emissions associated with services and households, which has been reinforced by measures, thus establishing a convex reduction pathway. The Swiss Climate Strategy envisages a significant decline in industrial emissions, with emissions associated with industrial processes stagnating at a slightly lower level. Based on actual emissions, a target reduction pathway can be defined using the Swiss Climate Strategy with the concave target pathway as the starting point. A concave target pathway shape assumes that the short- to medium-term reduction of emissions will initially be slower, followed by an increase over time (corresponding to the «disorderly transition» scenario). Increasing pressure to act or technological innovation leads to additional acceleration. This also reflects the current long-term climate strategy in Switzerland, which envisages a concave decline in emissions for the "zero" (net zero) scenario. The first CO₂ cuts (thanks to negative emissions technologies (NET) or carbon capture and storage (CCS)) will be possible from 2035 onwards and will increase rapidly after 2040. The use of NET and CCS is targeted at otherwise non-reducible manufacturing processes.

A bottom-up simulation of the reduction pathway was used to test its feasibility and calculate how many renovation loans would need to be completed annually per advisor to achieve the reduction pathway. In future, this simulation and these measures will remain under review, and targets and measures will be established if possible.

In order to implement the Swiss Climate Targets, the Canton of Schwyz has developed an Energy and Climate Plan 2022+, which is based on existing energy policy over the period of 2013 to 2020. The partial revision of the cantonal Energy Act of the Canton of Schwyz entered into force on 1 May 2022. This includes more stringent requirements for new buildings and renovations. There is no ban on fossil heating in the Canton of Schwyz. Essentially, the Act lays down standard requirements for the cantons in the energy sector (MuKEn 2014).

¹ _{The Paris Agreement stipulates that the parties must establish a long-term climate strategy by 2020, which they must comply with by the middle of the century through a mix of emission sources and reductions.}

1.4.2 Transition plan: financed CO₂ emissions in the investment sector

The Bank adopts a systematic approach to measuring and reducing CO₂ emissions associated with the investments financed by it. In this context, the Bank measures CO₂ emissions under the ethical line (sustainable asset management mandates and sustainable funds). The Bank is committed to continuously monitoring, analysing and actively reducing its financed CO₂ emissions. The strategy focuses on promoting sustainable investments.

The SZKB transition plan is based on clear objectives to foster a sustainable and responsible investment strategy. This plan incorporates several material measures for decarbonisation that also seek to influence clients’ preferences. The SZKB investment transition plan aims to comprehensively transform its investment strategies both to support global climate targets and cater to the growing sustainable investment preferences of its clients. As a first step, SZKB has defined the following objectives:

• Decarbonisation of the ethical line according to the implied temperature rise approach: For its ethical line, SZKB uses the implied temperature rise approach (adherence to the 1.5°C target). The admissibility of investments is thus determined on the basis of a maximum implicit increase in temperature for the activities carried out by an issuer.
• Share of SZKB investment funds geared towards client preferences: The proportion of SZKB investment funds with alignment with client preferences of "Aware" or "Focussed" as a total of all SZKB investment funds amounts to at least 20% in 2025 and at least 50% by 2030.
• Number of asset management mandates with client preferences: The number of asset management mandates with client preferences "Aware", "Focused" or "Effective" out of the total of all asset management mandates amounts to at least 20% in 2025 and at least 50% in 2030.

In the management of AuM (Assets under Management), SZKB already takes into account the criterion of alignment with a 1.5°C target in the portfolio construction of its ethical line (funds and discretionary mandates). With this strict focus on climate neutrality in line with the requirements of the Paris Agreement, SZKB is already in a position to declare a "target" of 100% of fund assets as being consistent with the 1.5°C target. This approach demonstrates the funds’ systematic alignment with climate targets. According to its chosen approach, SZKB ensures that targets are always in line with scientific findings. However, there is also heavy dependence on climate scenarios, which can result in greater demand for rebalancing and also pose a risk to the size of the investment universe. SZKB will once again focus on the topic of transition plan and objectives in the coming years and also review and extend scenario selection, objectives and the transition plan in the investment area as well as treasury, and if necessary, adapt and expand it.

1.4.3 Transition plan: Operational CO₂ emissions

In 2024, SZKB calculated the reduction pathway for its operational emissions for the years 2030, 2040 and 2050. The following assumptions were made:

General assumptions

• All calculations and analyses are based on SZKB’s certified carbon footprints.
• In future, the carbon footprint will continue to take into account the same emission sources as in 2023, in order to ensure a systematic and comprehensible basis for calculation.
• It is assumed that emission factors in Scope 1 and 2 (and in part in Scope 3) will be halved in accordance with Switzerland’s climate targets by 2040 and will fall to zero by 2050. The figures for 2023 apply to all other emission factors, as SZKB cannot adapt any adjustments to the emission factors.
• The number of full-time equivalents (FTEs) remains constant over the period considered.

Assumptions regarding Scope 1
Heating

• Consumption is influenced by the number of heating days. All fossil heating systems in bank buildings under the sole ownership of SZKB will be replaced by 2030, whereas those in rented properties and condominium buildings will be replaced by 2050.
• CO₂ emissions from wood heating systems will increase by 50% by 2030 and will remain stable thereafter (assumption: at least one other property under the sole ownership of SZKB will be heated with wood pellets in the future). Since wood is a biogenic source of CO₂ emissions, it is assumed that only 50% will be recognised in the carbon footprint by 2040 and that it will no longer be included from 2050.

Refrigerant leakage

• These emissions are difficult to predict. For the reduction pathway, it is assumed that by 2030, emissions will correspond to the average figure for 2021 to 2023, and to 50% of that level by 2040, and that full replacement with climate-neutral coolants will occur by 2050.

Transport (vehicles owned by the company)

• The remaining vehicles with internal combustion engines will be replaced with low-emission vehicles by 2026. Thereafter, CO₂ emissions in Scope 1 will be zero.

Assumptions regarding Scope 2:
Electricity consumption

• Electricity consumption, mix: There is not as yet any information on the electricity mix for properties that are not under the sole ownership of SZKB and for cashpoints at third-party locations. Due to limited influence, emissions are expected to remain at the 2023 level until 2030 (representing a decrease of 47.9% compared to the base year 2021). From 2040 onwards, the emissions factor for the electricity mix will be halved until it reaches zero in 2050.
• Electricity consumption, 100% renewable: SZKB employees are expected to see a rise in electricity consumption due to FTE growth, proliferating electrification and increasing use of charging stations for electric vehicles.

Heating

• The SZKB headquarters and several branches are connected to a district heating network. As the shift from fossil heating to district heating progresses, emissions are expected to increase by 40% by 2030 (compared to 2023). From 2040 onwards, the emission factor for district heating will be reduced, reaching zero in 2050.

Assumptions regarding Scope 3
Energy provision (energy-related emissions not included in Scope 1 or 2)

• Preliminary remark: Swiss Climate calculates the so-called "energy supply emissions" for the energy that SZKB purchases. For example, in 2023 electricity consumption with 100% renewable electricity emissions was associated with CO₂ emissions of 9.8 t.
• Energy supply emissions are adjusted based on forecast consumption.
• By 2030, CO₂ emissions from electric heat pumps will rise to 1.0 t and will remain constant.
• The emission factor for electricity consumption, mix, will align with the emission factor for electricity consumption, 100% renewable, in 2050.
• Biogenic CO₂ emissions from wood will be recognised at 50% from 2040 and not at all from 2050.

Business trips (external vehicles)

• Due to the switch to low-emission vehicles, the use of petrol and diesel vehicles will be reduced by 21% by 2030, by 50% by 2040 and by 100% by 2050. The number of journeys by electric vehicle will increase accordingly. There will be no significant change in the use of public transport options such as trains and buses compared to 2023.

Transport (external vehicles)

• A fall in the use of petrol and diesel vehicles of 21% by 2030, 50% by 2040 and 100% by 2050 is also assumed in relation to transportation of valuables and cashpoint maintenance. No significant changes in processes are expected.

Commuting trips

• Energy consumption when working from home: Assumption: CO₂ emissions remain the same compared to 2023 at 6.9 t. No FTE growth.
• Petrol- and diesel-powered vehicles: The use of fossil fuel vehicles will fall by 21% by 2030, 50% by 2040 and 100% by 2050 due to the switch to low-emission vehicles.
• Electric vehicles: With the increase in electric vehicles, the distance travelled will grow by 15% annually until 2030. 1.5 million km will be travelled annually by 2040 and 2.5 million km annually by 2050, resulting in CO₂ emissions of 66.9 t.
• Hybrid vehicles, LPG vehicles, motorbikes, trains, e-scooters, e-bikes: CO₂ emissions will remain in line with the 2023 figures.

IT equipment

• The procurement of IT equipment is managed according to a replacement cycle. The reduction pathway is based on the average for 2021 to 2023.

Paper

• SZKB uses mostly recycled paper, which results in only minor reductions in CO₂ emissions (no significant reduction in CO₂ in the event of a reduced consumption of fresh fibre paper).
• The amount of paper consumption will fall by 3% annually by 2030, with a further decline of 9.17% by 2040 and 17.43% by 2050.

Print jobs

• The volume of print jobs fell sharply from 2021 to 2023.
• By 2030, CO₂ emissions from external print jobs will remain at 10,000 kg per year and will fall to 9,000 kg by 2040 and 8,000 kg by 2050.

Shipping

• Assumption: –4% annually by 2030, with constant assumptions for 2040 and 2050.

Consumables

• Assumption: CO₂ emissions will remain constant at 1.5 t per year.

Waste

• Assumption: CO₂ emissions amount to 5.0 t per year.

Water

• In 2023, the emission factor for water was massively reduced. Based on this new emission factor, CO₂ emissions are expected to amount to 1.0 t per year.
  

In 2024, SZKB worked together with a specialized consulting firm to conduct a client satisfaction survey with the following key figures:

• Survey period: 14 Aug. to 9 Sep. 2024
• Case numbers
  • Total: n=1,396 (12% response rate)
  • Private clients: n=1,087 (12% response rate)
  • Private banking: n=171 (16% response rate)
  • Corporate clients: n=138 (8% response rate)
• SZKB attended to data selection and dispatch.
• Clients had the option of submitting responses anonymously.
• Collection methodology: Online in response to a letter containing an access code for the survey.

SZKB conducts employee satisfaction surveys (ESS) every two years. As the last survey was conducted in 2023, the next survey is planned for 2025.