FINMA published the amended circulars on disclosure requirements for banks (Circular 2016/1) and insurers (Circular 2016/2), in an effort to increase transparency with respect to the climate-related financial risks. 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 principles-based and thus allow flexibility in implementation. The revised circulars will enter into force on July 01, 2021.
FINMA has based the disclosure rules on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). FINMA notes that the following principles-based elements should be covered and disclosed:
- Governance. Describe how the Board of Directors exercises its overall supervision with regard to climate-related financial risks.
- Strategy. Describe and identify the major climate-related financial risks (short, medium, and long-term risks) as well as their impact on the business strategy, business model, and financial planning.
- Risk management. Describe the process for identification, assessment, and management of climate-related financial risks.
- Quantitative information. Provide information on climate-related financial risks and the associated methodologies.
FINMA had conducted a public consultation on climate risk disclosures for banks and insurers from between November 10, 2020 and January 19, 2021. All participants in the consultation fundamentally welcomed the clarification of disclosure obligations and deemed it appropriate to base these on the TCFD reference framework. A number of voices demanded further measures from FINMA, such as for the scope of application to be extended to include medium-size and small institutions, more detailed rules for scenario analyses, or the specification of key figures for quantitative disclosure. As promised in the consultation, FINMA will review, as part of an ex-post evaluation, whether and to what extent amendments would be appropriate to the disclosure practices on of climate risks. Certain requests from the consultation participants, such as establishing transparency in relation to the climate impact, are outside the mandate of FINMA and therefore have not been not considered.
Related Links (in English and German)
- Press Release
- Circular on Disclosures for Banks (PDF)
- Circular on Disclosures for Insurers (PDF)
- Explanatory Report (PDF)
Effective Date: July 01, 2021
Keywords: Europe, Switzerland, Banking, Insurance, Proportionality, Climate Change Risk, ESG, Governance, TCFD, Disclosures, FINMA
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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