Since 2021, large banks and insurance companies (supervisory categories 1 and 2) have been required to meet disclosure requirements regarding climate-related financial risks. Following a period of experience accumulation, the Swiss Financial Market Supervisory Authority (Finma) has conducted a review, as announced on Thursday. In a surprising outcome, Finma has opted against adjustments—for now.

In its ex-post evaluation report, the authority concludes that the principle-based regulation, in keeping with Swiss tradition, has proven effective and achieved its original objectives. This assessment draws not only from internal evaluations but also from 15 responses across the banking and insurance sectors, other governmental bodies, and non-governmental organizations (external evaluation).

Looking Ahead to International Developments

However, Finma emphasizes that current climate risk regulations for financial institutions are not set in stone, noting ongoing developments in sustainability reporting nationally and internationally. It intends to await progress by international standard setters in banking and insurance before considering future adjustments to requirements.

Moreover, in response to increasing global oversight by entities such as the now-disbanded Task Force on Climate-related Financial Disclosures of the Financial Stability Board, and national legislative bodies like the Swiss Federal Council's enforcement ordinance on climate reporting for major Swiss companies enacted earlier this year, Finma acknowledges the shifting landscape.

Shifting Focus to Risk Management, Not Just Transparency

With a shift in focus from transparency to risk management concerning climate and other natural risks, Finma intends to specify its supervisory practices in managing such risks through its new circular, «Nature-related Financial Risks.» The consultation on this circular concluded at the end of March, with implementation scheduled for early 2025.

While Finma seizes the opportunity to set expectations for large financial institutions today, it generally anticipates public reporting to align consistently with internal risk assessments and processes. It recommends that institutions of all supervisory categories closely monitor developments in sustainability reporting and proactively engage with the federal government's consultation draft on sustainable corporate governance (adjustments to corporate law).

Exercising Caution Akin to the Approach on Greenwashing

Finma's prudent stance on climate risks, while keeping options open, mirrors the recent decision by the Federal Council to defer state interventions on Greenwashing issues—where providers tout financial products and services with unsustainable claims—preferring industry self-regulation and awaiting EU regulations.

While future state regulations on climate risk disclosure and Greenwashing in Switzerland appear inevitable given international trends, the caution exercised by both the Federal Council and Finma is commendable. Recognizing that international and European standards for the financial sector have consistently tightened in recent years, it underscores that such progression is not immutable law.