09 June 2021

ESG: FINMA specifies transparency obligations for climate risks

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  • Legal
  • Governance / ESG

Banks and insurance companies are required to inform the public adequately about their risks. These also include the consequences of climate change, which could pose significant financial risks for financial institutions in the longer term. FINMA is requiring large banks and insurance companies to provide qualitative and quantitative information in this area and is amending its circulars on disclosure.

  • Dr. Martin Eckert

    Legal Partner

Transparency by supervised entities about their climate-related financial risks is a first important step towards identifying, measuring and managing these risks, see also Risikomonitor 2019 (PDF, 222 Kb)

Accordingly, FINMA is clarifying its supervisory practice in the area of disclosure of climate-related financial risks. In doing so it is fulfilling its strategic goal of contributing to the sustainable development of the Swiss financial centre. Besides the consideration of climate risks in supervisory activities and preventing the public from being misled about a product’s sustainable characteristics (greenwashing), promoting transparency is FINMA's major focus in this realm.

QUALITATIVE AND QUANTITATIVE INFORMATION

Following an intensive dialogue with various interested parties and a public consultation, FINMA is amending its “Disclosure –banks” and “Disclosure –insurers” circulars. In future, the affected institutes should describe the major climate-related financial risks and their impact on the business strategy, business model and financial planning (strategy). In addition, they must disclose the process for identifying, assessing and managing climate-related financial risks (risk management) as well as quantitative information (including a description of the applied methodology) on their climate-related financial risks. Finally, the institutes must describe the central attributes of their governance structure in relation to climate-related financial risks.

PROPORTIONAL, PRINCIPLES-BASED AND INTERNATIONALLY COMPATIBLE

The revised circulars will enter into force on 1 July 2021. Initially only the large banks and insurance companies (supervisory categories 1 and 2) will fall under the scope of the disclosure obligations for climate-related financial risks. The disclosure obligations are designed to be principles-based, giving the institutions flexibility when implementing them. FINMA has based its disclosure rules on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), an internationally recognised reference framework, and is thus introducing internationally compatible disclosure requirements.
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