FINMA Sets Out Guidance on Climate-Related Financial Risk Management
The Swiss Financial Market Supervisory Authority (FINMA) published guidance on developments in the area of climate-related financial risk management.
The guidance aims to make banks and insurance companies more aware of climate-related financial risks. The climate risks pose significant challenges for financial institutions and supervisory authorities and are likely to materialize sooner or later. The current law states that financial institutions are obliged to record their main climate-related financial risks as part of risk management and to manage them appropriately and disclose them. Through this guidance, FINMA draws attention to relevant international developments in the area of climate-related financial risk management and reaffirms its expectation that supervised institutions will establish climate risk management that is adequate and appropriate to their risk profile. FINMA also expects the supervised financial institutions to proactively address the recommendations and assistance provided by international bodies and market best practices, and to further develop their instruments and processes.
FINMA has been integrating climate-related financial risks into its supervisory activities in a strategic, proportionate, and risk-based manner. FINMA strives to develop effective supervision with regard to the management of climate risks of the supervised entities and to align its supervisory activities with best international practices. In particular, FINMA examines international practices and recommendations from the standard-setting bodies and decides to what extent it implements them in its supervision. FINMA develops its supervision with regard to the management of climate risks of banks and insurance companies every year and is currently focusing on institutions in supervisory categories 1 and 2. Going forward, FINMA will tend to intensify its supervision of how institutions deal with climate risks and extend it to a larger number of institutions, by taking into account the principle of proportionality. FINMA will further develop its expectations for the management of climate-related financial risks at the supervised institutions and, where appropriate and necessary, specify them. The specification of specific supervisory expectations is intended to give the supervised entities clarity as to how the general requirements for aspects such as governance, risk management or internal controls relating to climate risks are applied.
Keywords: Europe, Switzerland, Banking, ESG, Climate Change Risk, Disclosures, Transition Risk, Reporting, FINMA
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