Integrating climate-related risks into supervisory practice

FINMA is committed to ensuring that the supervised institutions manage climate-related risks adequately. It is primarily the responsibility of the institutions to identify and mitigate these risks and to refine their risk management accordingly. The approach here is generally comparable with other risk drivers and is designed to be risk-based and proportionate. FINMA’s measures are based on the requirements and guidelines of international standard-setting bodies such as the Basel Committee on Banking Supervision (BCBS) and the International Association of Insurance Supervisors (IAIS) as well as the non-binding NGFS recommendations.

Besides continuing its dialogue with the largest supervised entities as well as developing and enhancing supervisory concepts for monitoring risk management at banks and insurers, FINMA is pursuing the following measures in particular.

New circular on climate- and nature-related risks

FINMA is currently drafting a new FINMA circular on nature-related financial risks, which will apply to banks and insurance companies. FINMA is thus seeking to specify the risk management requirements for institutions with regard to climate and other nature-related financial risks. The circular will incorporate the current recommendations of the international standard setters, in particular the BCBS and the IAIS, as well as parts of the NGFS recommendations.

Strengthening the data basis for assessing climate risks

Like the supervised institutions, FINMA also needs data to assess climate risks. Regular data collection in this area, which should cover various features and transmission channels of climate risks, will be carried out from 2024 at larger institutions (supervisory categories 1 to 3). It also serves as an important basis for fulfilling FINMA’s reporting obligation on climate risks as envisaged by Parliament in the CO2 Act.

Integrated view of nature-related risks

FINMA shares the assessment of the NGFS that an integrated approach to climate risks and other nature-related risks such as the loss of biodiversity makes sense. Climate change and biodiversity loss are closely linked, as stated for example in the 2021 report entitled “Biodiversity and climate change” published by the IPCC and IPBES, and represent drivers of potentially relevant financial risks for financial institutions. FINMA will increasingly integrate this comprehensive view of nature-related risks into its practice where appropriate and possible, for example in the above-mentioned circular.

Beyond nature-related financial risks, FINMA generally deals with the various dimensions of sustainability and, in this context, is vigilant about potential, emerging or growing financial risks.

Transparency and international cooperation

Overall, financial institutions and supervisory authorities worldwide are still in the process of developing established practice in the area of climate-related risks. In particular, they are working to develop and deploy suitable approaches and tools for measuring and mitigating risks, as well as to ensure the transparent disclosure of the corresponding risks. International cooperation also plays a pivotal role here.