ESG developments and the impact on financial institutions in Switzerland
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ESG developments and the impact on financial institutions in Switzerland

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Oliver Widmer, Joseph Steiner and Manu Ferro of Pestalozzi explain why financial institutions in Switzerland should be aware of climate-related financial risks

The Swiss Confederation ratified the Paris Agreement on October 6 2017 and committed itself, not only to the objective of reducing greenhouse gas emissions (CO2) of minus 50% by 2030 in comparison with 1990 emission levels, but also to the objective of greening the financial system by making financial flows more climate-friendly.

Ever since, but already prior to the Paris Agreement, numerous reports on the potential impact of environmental issues on economies and global financial markets have been (or were) published by other international bodies. For example, the OECD reported in 2017 that climate change poses a major systemic risk to economies.

The Financial Stability Board (FSB), likewise, reported in 2020 that climate-related risks, i.e. physical and transition risks, may alter asset price valuation and amplify credit, liquidity and counterparty risks. Climate-related risks may thus affect the stability (or resilience) of financial markets across jurisdictions.

The Swiss Parliament and the Federal Council are well aware of such risks and the potential damage that may result from environmental issues, such as climate change or the loss of biodiversity, to the Swiss financial market, on a macro-level, and to the Swiss financial institutions, on a micro-level.

For the time being, it seems that environmental, climate-related risks dominate the current regulatory discussions concerning environmental, social and governance issues (ESG, or sustainability-issues) from a Swiss financial market regulations perspective, even though the social and governance issues are not of lesser importance from a societal and economical perspective.

For example, with regard to the social component and governance component of ESG it is worth mentioning the new duties under the Swiss Parliament’s counterproposal to the Responsible Business Initiative (Konzernverantwortungsinitiative) which will be implemented unless a referendum is called. These duties require, among other things, that companies of public interest report on ‘non-financial matters’, including the impact of their activities on social, employee, human rights and anti-corruption matters.

In the context of climate change or climate-related (financial) risks, a myriad of parliamentary initiatives or proposed amendments have subject the role of the financial market, the role of the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank (SNB), as well as the duty of care of financial service providers.

Therefore, and in light of one of the Paris Agreement’s major objectives of greening the financial system, the focus of this article is placed on the environmental issues, in particular on climate-related (financial) risks from a Swiss financial market regulations perspective.

The article provides an overview on the current legal basis applicable to the regulation of climate-related (financial) risks as well as on the role of the regulator. Subsequently, climate-related risk disclosure obligations for financial institutions and financial service providers are discussed.

Swiss financial market regulator in the ESG context

As a principle, the Federal Council’s view on regulating climate-related risks and incentivising financial flows from ‘brown projects’ into ‘green projects’ is that financial institutions, such as banks, insurance companies, asset managers and securities firms, should primarily take measures on a voluntarily and self-regulatory basis under the existing financial market laws and subject to the applicable supervisory practice of FINMA.

As Swiss supervisory authority and ‘regulator’, FINMA may give guidance and adopt practical rules and circulars for prudentially supervised financial market participants intending to promote ‘green investment products’ or to provide ‘green financial services’ on the primary and/or secondary markets subject to the existing Swiss financial market regulations.

The most important laws or statutes currently existing and applicable to such financial institutions are:

  • Banking Act (for banks) and the Insurance Supervision Act (for insurance companies);

  • Financial Institutions Act (for financial institutions, such as portfolio managers, asset managers, fund management companies and securities firms);

  • Financial Services Act (for financial services providers and clients’ advisors)

  • Financial Market Infrastructure Act (for financial market infrastructures, such as stock exchanges and multilateral trading facilities);

  • Collective Investment Schemes Act (for fund products, custodians and representatives); and

  • Anti-Money Laundering Act (for financial intermediaries).

FINMA’s competency to supervise financial market infrastructures and financial institutions is provided in the Financial Market Supervision Act. In addition, the National Bank Act sets out that the SNB has a mandate to oversee financial market infrastructures that pose risks for the stability of the financial system.

Neither the Financial Market Supervision Act nor the National Bank Act explicitly include a provision governing the statutory power or obligation of FINMA or the SNB to consider climate-related financial risks. The existing financial market regulations, however, implicitly provide sufficient legal basis for FINMA and the SNB to oversee and take adequate measures, if required, in respect of such risks.

Noteworthy in this regard, the Swiss Parliament strengthened FINMA’s and SNB’s position by adopting the amendments to the ‘Federal Act on the Reduction of CO2 Emissions’ in September 2020.

A narrow majority of the Swiss voters, however, rejected the proposed amendments on June 13 2021, under which the Swiss Parliament would have explicitly mandated FINMA to review, on a micro-prudential level, the Swiss financial institutions’ exposure to climate-related financial risks and the SNB to review, on a macro-prudential level, climate-related (systemic) risks on a regular basis.

FINMA and the SNB became a member of the Networking for Greening the Financial System (NGFS) in April 2019 to engage in dialogue, better understand and manage climate-related financial risks and systemic risk. Both authorities are represented in the NGFS Plenary.

After becoming a member to NGFS, FINMA published its first risk monitor in November 2019 and identified financial risks from climate change as one of the most important long-term risks for the Swiss financial market, and that losses on the investments of banks, asset or wealth managers, and insurance companies may have a severe impact on their balance sheets.

A year later, in November 2020, FINMA published the second risk monitor and announced its intention to increase transparency and expand disclosure obligations with regard to climate change-related financial risks in the (Swiss) financial system.

Banks and insurance companies of supervisory category 1 and 2

Following FINMA’s announcement in November 2020 to increase transparency and expand disclosure obligations, a public consultation took place on amendments to FINMA’s regulatory circulars related to disclosure obligations of banks and insurers.

The consultation ended on January 19 2021 and the amendments entered into force on July 1 2021. FINMA’s adoption of the circulars is based on the Financial Market Supervision Act, the Banking Act and the Insurance Supervision Act and their implementing ordinances.

The two circulars set out climate-related disclosure obligations of systemically important banks and (account holding) securities firms as well as systemically important insurers (SIFs). These large financial institutions must newly disclose the management of climate-related financial risks on a consolidated and annual basis. The annual report for the current reporting period will already have to include the respective information.

Disclosures should contain information on how a financial institution identifies, evaluates, manages and monitors transitional and physical risks. In particular, financial institutions must have an adequate governance structure in place and possess sufficient risk management resources to deal with, describe and quantify climate-related risks. They should describe their impact on the business strategy, business model and financial planning. The disclosure of the process for identifying, assessing and managing climate-related financial risks (risk management) is also required by FINMA. SIFs must provide quantitative information (including a description of the applied methodology) on their climate-related financial risks.

The amended disclosure circulars do neither directly affect banks, securities firms or insurance companies that do not qualify as SIFs nor portfolio managers, asset managers or other financial services providers.

Financial institutions other than large banks and insurance companies

For smaller (international) financial institutions, the ‘climate-related regulatory regime’ remains unchanged for the time being.

For example, the Financial Institutions Act or the Financial Services Act do not explicitly provide for climate-related risk disclosure obligations (both Acts entered into force on January 1 2020). Hence, such financial institutions are in principle not required to disclose climate-related financial risks. They can voluntarily observe disclosure rules or recommendations, such as the recommendations of the ‘Task Force on Climate-related Financial Disclosures’, a task force established by the FSB.

“FINMA's adoption of the circulars is based on the Financial Market Supervision Act, the Banking Act and the Insurance Supervision Act"

In that sense, neither portfolio managers nor asset managers are obliged under Swiss financial market regulations to disclose or report climate-related risks to the public. Their institutional clients, however, are increasingly demanding that asset managers make responsible investments according to international standards, such as the UN Principles for Responsible Investment, and that they publish the relevant information in an annual report.

On a national level, asset managers or portfolio managers may elect to observe the recommendations for the inclusion of sustainability criteria in the investment process published by the Asset Management Association Switzerland together with Swiss Sustainable Finance (SSF) a year ago in 2020.

Thus, climate-related transparency rules do exist for Swiss asset managers in form of ‘soft law’ or self-regulation. Asset managers can declare, on a voluntarily basis, that they wish to be subject to such standards and to comply with the information disclosure and reporting rules or principles. The relevant information that asset managers should then disclose usually includes both information related to financial products (product level), such as ‘green fund products’ or ‘green bonds’, and information on the asset manager’s performance, investments and organisation (entity level).

On an entity level, for example, information on governance structures and risk management of Swiss asset managers should include descriptions and metrics on evaluating and monitoring the ‘green’ performance. On a product level, asset managers may be obliged to disclose climate-related risks, or in a broader sense sustainability-risks (ESG-risks), and effects of the products and investments on climate change (or sustainability). For instance, fund documents should include information about ESG-performance indicators, ESG benchmarks and sustainable investment strategies or policies.

Once financial institutions, such as asset managers, securities firms or banks, opted in to apply recognised ESG-reporting standards, such institutions should be aware that they may also expand their duty of care as well as information and documentation duties at the point of sale towards their ESG-affine professional or private clients from a financial market regulations perspective.

As a result of the amended disclosure circulars, it cannot be excluded that SIFs, for example, may further amplify the ESG-reporting trend within the asset management sector and impose disclosure obligations on their asset managers.

Financial services providers at the point of sale

As a civil law principle, the information and disclosure obligations of a financial institution towards their clients at the point of sale depend on the client’s knowledge and experience as well as investment expectations.

Upon the entry into force of the Financial Services Act in 2020, the information and disclosure obligations in relation to investment risks of clients have explicitly been embedded into the new regulatory framework. According to this Act, financial services providers that, for example, personally recommend financial instruments must inform their clients about the risks and costs related to the recommended financial instruments.

As mentioned above, climate change or climate-related financial risks have been acknowledged by international bodies, the Federal Council and FINMA to pose a threat to the Swiss financial market, market participants and investors. Transparency obligations are (or may be) imposed on financial institutions.

In particular, with respect to ‘greenwashing risks’, to which investors are exposed, FINMA signalled that it will not be reluctant to step in, if necessary, and refer to the regulatory duties under the existing laws to protect investors from a consumer protection perspective. It can be argued that the Financial Services Act already captures, at least indirectly, climate-related (financial) risks.

Hence, at least financial services providers that promote a ‘green business model’ and intend to offer ‘green financial products’ and/or provide ‘green financial services’ to clients in Switzerland are well advised to adequately implement climate-related risk management processes and disclose the climate-related financial risks and costs of the respective financial instruments to comply with the Financial Services Act.

However, it is worth noting that, unlike foreign regulations or foreign legislative projects, the Financial Services Act does not explicitly impose an obligation on financial services providers to include ESG-preferences into the suitability-test that financial services providers must carry out if they provide portfolio management services or certain investment advisory services.

In June 2020, the Swiss Bankers Association published (not legally binding) guidelines for the successful integration of ESG considerations under the existing regulations, such as the Financial Services Act. The guidelines provide six principles that can be applied by financial services providers if they wish to provide advisory services in sustainable investments to (private) clients in Switzerland.

For example, these principles emphasise that the documentation obligations, suitability and appropriate processes under the Financial Services Act should also cover the ESG-preferences in addition to the traditional investor preferences to adequately assess the client’s investment profile and to meet client expectations.

Further, client advisors should be able to address ESG risks, opportunities and the intended effect of an investment, for example, on climate change. Best execution duties shall also apply to ESG preferences according to these principles. In fact, client advisors and employees may need additional training in the ESG context.

Practical implications

Going forward, the regulatory developments towards disclosure of non-financial risks may increasingly require Swiss financial market participants, particularly SIFs, to review their organisational structures and business operations in terms of ESG risks, and to duly report adverse effects to FINMA.

These developments have led to new disclosure obligations for large financial institutions which must now disclose the management of climate-related financial risks on a consolidated and annual basis.

While these new duties do not apply to ‘smaller’ Swiss financial institutions, international or institutional clients are increasingly demanding sustainable investments according to international standards. Even smaller Swiss financial institutions should not ignore recent ESG developments.

Therefore, Swiss market participants are advised to establish (or enhance) adequate organisational structures and processes to mitigate ESG risks (similar to credit risks, market risks or operational risks). For example, financial institutions should avoid concentration risks vis-à-vis corporations that (heavily) pollute the environment, or mitigate legal or reputational risks by proactively managing greenwashing issues, which (retail) investors may be exposed to.

Click here to read all the chapters from IFLR's ESG Europe Report 2021


Oliver Widmer



T: +41 44 217 92 42


Oliver Widmer is a partner and a member of Pestalozzi’s Financial Services Group and head of Pestalozzi’s private clients group.

Oliver primarily advises domestic and international banks, financial institutions, wealth management service-providers and high net worth individuals on banking, finance and capital markets matters.

Oliver has a master’s degree in law and accounting from the London School of Economics and Political Science.


Joseph Steiner

Senior associate


T: +41 44 217 92 71


Joseph Steiner is a senior associate and a member of Pestalozzi’s Financial Services Group.

Joseph specialises in banking and finance and capital markets, with a particular emphasis on financial services regulation, structured finance and acquisition finance. He regularly advises clients on ESG-related topics and publishes articles on Swiss financial markets regulation.

Joseph has a master’s degree in law from the University of Zurich and from the London School of Economics and Political Science.


Manu Ferro



T: +41 44 217 92 77


Manu Ferro is an associate and a member of Pestalozzi’s Financial Services Group.

Manu’s main areas of practice include financial transactions, capital markets, banking regulatory, corporate and contract law matters. She is regularly advising clients on ESG-related topics and publishes articles on Swiss financial markets regulation.

Manu has a master’s degree in law from the University of Bern and the University Paris-Sorbonne.

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