FINMA extends transparency obligations on climate risks in 2023

In 2021, FINMA, Switzerland’s independent financial-markets regulator, expanded the disclosure circular to include climate-related financial risks, whereupon financial institutions in categories 1 and 2 have built corresponding disclosures according to numerous criteria. Going forward,  other financial institutions will also have to publish climate reporting, such as on the basis of the TCFD.

These disclosures were assessed and summarized by FINMA at the end of November 2022. Financial institutions are required to publicly disclose a variety of climate-related risks.

These include:

• Climate-related financial risks and their impact on business and risk strategy
• Impact on existing risk categories such as market, credit, or operational risks
• Risk management structures and processes for identification, assessment, and treatment
• Quantitative information including description of used methodologies
• Specific new governance structures

Nevertheless, FINMA is dissatisfied with the efforts made so far due to lack of transparency and clarity. In some cases, the desired information is very limited with little comparability.

FINMA reported on and made suggestions for the following problems:

• Where references are possible, they must be unambiguous and clearly related to climate-related financial risks.
• Governance must be specifically supplemented with a climate-related risk framework. In this respect, disclosures describing general governance structures and processes are not sufficient.
• The mere identification of risks is not sufficient. Rather, the specific impact on the business strategy and risk profile must be analyzed and disclosed.
• Risk management structures and processes must be specific to climate criteria and move away from generic descriptions.
• Due to the wide variety of methods, different quantitative methods can be used. However, it is imperative to establish a reference to the exposures and be clear which portfolios are covered.
• Criteria and assessment methods for quantifying climate risks must be disclosed.

FINMA will reassess the climate risk disclosures later in 2023 and will initiate appropriate measures if necessary.

Please contact Sandro Schmid for further information.