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Bringing Sustainable Finance to the next level: What is Transition Finance?

How Swiss banks and asset managers are rising to the challenge of driving the transition to a sustainable future.

One of the key goals of the EU action plan on financing sustainable growth, the European Commission’s sustainable finance strategy, as well as the strategy for sustainable development 2030 of the Federal Council is to reorient capital flows towards a more sustainable economy.

While the last few years have been characterized by the regulatory tsunami and the "mainstreaming" of ESG investing, it is now time to take a step back and re-focus. The question in today’s era of rising interest rates and increasing political instability is where the future opportunities in sustainable finance lie.

Financial institutions with a long-term perspective understand that the climate crisis is as urgent as ever and the capital demand to finance the necessary green transition by the real economy is enormous both in developed and developing markets.

In this publication we want to explore the opportunities for Swiss banks and asset managers in driving the transition to a sustainable economy and the challenges that lie ahead.

Patrick Schmucki

Director, Financial Services, Corporate Responsibility Officer

KPMG Switzerland

Owen Matthews
Owen Matthews

Director, Financial Services

KPMG Switzerland

Exploring Transition and Blended Finance

What is Transition Finance?

While no standard definition has emerged yet, transition finance is commonly understood to be the use of financing strategies and instruments to facilitate the transition from a high-carbon to a low-carbon economy and therefore constitutes a very specific strategy or tool that financial institutions can deploy in the broader context of their sustainable finance strategies.

In developed markets, transition finance tends to be provided by means of “traditional” finance instruments such as bank loans or capital markets instruments. 

However, the biggest impact to reach the global climate goals is achieved with investments in illiquid assets in developing markets, which typically do not meet the requirements regarding investibility for many institutional investors. 

What is Blended Finance?

“Blended finance” instruments are a specific type of investment structure that have a key role to play in Transition Finance, especially for investments in developing markets.

Blended finance is the combination of both public and private funds through a common investment scheme or deal, with each party using their expertise in a complementary way.

Blended finance instruments use public capital to reduce risks and thus make projects worthy of investment for private investors. Ideally, a multiple of private capital can be mobilized in this way.

Transition Finance: Bridging the Gap to a Low-Carbon Economy

Climate change is a global challenge that requires a joint effort to overcome.

It is undisputed that the financing of such a sum is not possible without the mobilization of private funds.

By providing financing, financial institutions can make an important contribution to the upcoming transition of the Swiss and global economy to sustainable activities and thus to achieving the net zero target by 2050.

Experts estimate that the transition to a zero-emission and resilient economy by 2050 will require USD 2-4 trillion per year.

  1. Role of the Swiss financial center in financing the climate transition

    Hans-Ruedi Mosberger, Lead Sustainable Finance at SBA, in his guest article explains the financing needs to achieve net zero in Switzerland and globally and the role of the Swiss financial center providing funding.

  1. ESG Preference Elicitation: Impact of MiFID II on Sustainable Investment Choices

    Prof. Julian Kölbel and Camilla Weder from the University of St. Gallen have analyzed bank’s practices around the elicitation of clients’ sustainability preferences under MiFID II and found that policy makers’ goal of directing more savings towards sustainable businesses is not (yet) being achieved.


    Specifically, they found that banks implement the regulation in different ways with no clear emergence of a common practice yet. The main results indicate that, on average, only 5% of clients express a preference for sustainability. This figure is low compared to the fraction of clients who have invested in sustainable products, which is on average 40%.


    They explore possible reasons for this gap and offer suggestions for improving the measurement of sustainability preferences in their study.

  1. Harnessing Private Investment for Climate Finance

    In our talk with Dr. Stephanie Bilo, Chief Client & Investment Solutions Officer at responsAbility Investments AG, she explains the asset managers’ engagement for transition finance and the challenges they are facing.

  1. Mobilizing funds to address climate change

    Christoph Baumann, Envoy for Sustainable Finance at the State Secretariat for International Finance (SIF), lays out how the Swiss government is working on the right framework conditions to position Switzerland as a leading center for transition finance.

  1. Guide for Adaptation and Resilience Finance

    This guide, co-authored by KPMG, Standard Chartered and the UN Office for Disaster Risk Reduction, aims to provide guidance to investors who are looking to allocate capital to projects focused on climate and nature adaptation and resilience.

Ahead into the future of sustainable finance

Navigating the intricate world of transition finance presents various obstacles for financial institutions, governments, and businesses alike.

However, the potential for impactful change is substantial. By providing the right products and vehicles, the right framework conditions, and fostering collaborations between the public and private sectors, we can progress towards a low-carbon economy.

This shift in financing should not solely be focused on combatting climate change; it is equally about forging a future that marries social well-being with environmental sustainability.

How can KPMG support you

  1. ESG in banking

    As banks and their customers consider future allocations of capital, ESG issues are likely to be increasingly at the forefront of their considerations.


    We are working with regional and global banks to build ESG rules and structures that support their public net zero commitments, help fulfil regulatory expectations and assist in achieving a just transition for their stakeholders.

  1. ESG in asset management

    Growth in sustainable investment is accelerating.


    This brings a suite of challenges for asset managers, as ESG considerations should be factored into investment strategy, reporting, assurance, risk and due diligence and tax.

Meet our expert

A sustainable future affects us all. Keep up with the rapid pace of change.

We stand out with our bespoke services, working with you shoulder-to-shoulder in a tailored manner, combining deep industry expertise with ESG knowledge and drawing on our international expert networks.

Contact our experts if you have questions or would like to discuss industry trends.

Patrick Schmucki

Director, Financial Services, Corporate Responsibility Officer

KPMG Switzerland

Owen Matthews
Owen Matthews

Director, Financial Services

KPMG Switzerland


Sustainable Finance

The evolution of finance as the new driving force of sustainable development.