ESG Developments: Impact on Financial Institutions in Switzerland

Date:

Financial institutions in Switzerland may face climate-related financial risks. An evaluation of a firm’s collective conscientiousness for environmental and social factors is collectively called ESG(Economic, Social and Corporate Governance).

It’s mainly a score compiled from data assembled surrounding specific metrics related to intangible assets within the corporation. They are utilised for a myriad of particular purposes with the ultimate motive of measuring components on sustainability and the societal impact of a company or business.

Paris Agreement 2017

The Paris Agreement was signed by Switzerland in 2015 and ratified in 2017. The utmost objective was to ensure that the requirements of the Paris Agreement is fulfilled by Switzerland and contributes to the global efforts to restrict global warming.

The Long-Term Climate Strategy summarises reasonable developments up to 2050 for the buildings, industry, transport, food and agriculture, financial market, waste and synthetic gases and international aviation sectors and defines strategic goals for each sector.

It is aiming to reduce the emission level in every possible industry through adopting specific measures.

Impact on Financial Institutions

In October 2017, the Swiss Confederation committed itself to decrease 50% of greenhouse gas emissions by 2030 and greening the financial system by making financial flows more climate-friendly.

Since then, multiple reports have been published on the possible impact of environmental issues on economies and global financial markets. The reports stated that climate change poses a significant systemic risk to economies.

The Swiss Parliament and the Federal Council are familiar with such risks and the harm from environmental issues, such as climate change or biodiversity loss. These issues can affect the Swiss financial market and the Swiss financial institutions on a macro and micro level.

Climate-related risks lead regulatory discussions concerning the Swiss financial market’s environmental, social and governance issues (ESG or sustainable issues).

In the context of climate-related financial risks, numerous parliamentary initiatives or proposed amendments have subject the role of the financial market FINMA and the Swiss National Bank, including the duty of care of monetary providers.

For this particular subject, various national and international initiatives have been launched.
FINMA is involved in work being carried out by the federal authorities on sustainability in the financial economy and supports the analysis conducted by the working group on sustainable finance.

Regulatory measures are being reviewed to maximise the transparency regarding such risk in the financial system. Adding to the fact, the focus should also include the potential risk involving greenwashing in the provision of distribution of financial products and financial services.

In the ongoing discussion regarding the applicable definition of climate policy measures, it is crucial to raise awareness of the corresponding risks among the supervised institutions.

With the help of collective efforts, developing an established practice is still ongoing by the financial institutions and supervisory authorities around the globe.

In general, they aim to create and adopt suitable approaches and instruments to measure and minimise the risks and ensure the transparent disclosure of the corresponding risks.

The Network plays a leading role in this respect for Greening the Financial System (NGFS) in the context of a supervisory authority and central bank.

Solution

From 2024, climate-changing reporting is to become mandatory by order of the Swiss Government. For this particular purpose, the government has also laid out some parameters.

The business organisation with total assets or a turnover of more than 40 million francs will be obliged to report climate issues from 2024 publicly.

According to the governments’ outlined parameters, the companies need to include the financial risk it incurs as a result of climate-related activities and disclose the impact of its activities on the climate and environment.

Preeti Singh
Preeti Singh
Preeti, a highly motivated individual - recently graduated with a bachelor's degree in media (Journalism). She has immense love for books and films, whether it's just for mere entertainment or a whole new world of knowledge. She is excited about this role because it will help her explore the concept of writing more clearly and learn about work-related technicalities. Likes more to write about people rather than interacting with one. Has a weird obsession with Jess Eisenberg movies and cooking shows.

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