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Switzerland targets climate risk disclosures for 2024

19 August 2021 Amena Saiyid

Switzerland's highest decision-making body has given its agencies the green light to begin writing mandatory climate risk disclosure rules for the country's large public companies, banks, insurance companies that could take effect as early as 2024.

The Swiss Federal Council, which is composed of seven elected members, approved on 18 August parameters for upcoming disclosure rules that would impose what it called "double materiality" and would apply to least 200 companies, each with at least 500 employees and at least $21.8 million in assets.

Under these parameters, Swiss companies, such as Nestle, Credit Suisse, and Zurich Insurance, along with their global operations, would be required to not only report the risk their businesses face from climate-driven events, but also the risks their operations pose to the environment, Mario Tuor, spokesman for the state Secretariat for International Finance, told Net-Zero Business Daily.

"The sheer number of systemically important financial firms and corporations headquartered in Switzerland make this an important development for investors," IHS Markit Climate and Cleantech Director Peter Gardett said.

The parameters would be based on the 2017 recommendations penned by the Task Force on Climate-Related Financial Disclosures, a group formed in 2015 at the behest of the Financial Stability Board, an international body that monitors and makes recommendations about the global financial system. At least 1,700 organizations around the globe have voluntarily adopted TCFD reporting guidelines that are centered around governance, strategy, risk, and measurements of GHGs. Analysts, however, say the quality of these disclosures remains inconsistent at best.

Investors are demanding material information from companies that say they are taking steps to mitigate the effects of climate change or are developing clean energy technologies to reduce GHGs.

Once adopted, Switzerland joins the ranks of developed nations, such as New Zealand and France, that have already mandated these requirements, or ones like the UK that are planning to phase in the mandates, with the first set of reports due April 2022. The EU has proposed standards and the US is looking to propose a climate disclosure rule by the year's end.

"National financial regulators are racing each other to set the pace on global climate risk disclosure, and this move by the Swiss government sets up a serious challenge for other major financial centers," Gardett said. "Whoever gets this right first would benefit from the financial innovation and activity that will accompany the energy transition."

The Swiss rules would not apply to foreign companies with branches in Switzerland "if their mother countries have similar climate disclosure obligations, otherwise they will be obliged," Tuor added.

Draft disclosure rule due next summer

The Secretariat for International Finance together with the Federal Office for the Environment will use the council's parameters to write a draft text of rules by the summer 2022. The Federal Council will issue the order mandating the disclosure requirements after consulting with business associations, political parties, and the country's 26 cantons, Tuor said.

The Federal Council made it clear that climate disclosures would need to be meaningful and comparable and include forward-looking information to be of use to global investors who have been complaining about a lack of consistency and completeness in climate disclosures that have been voluntary in nature.

Investment in climate-driven, clean energy technology is expected to reach $43 trillion by 2050, the deadline set under the Paris Agreement to limit global warming to 1.5 degrees Celsius compared with pre-industrial levels.

With some 120 countries committing to achieving net-zero emissions by 2050, regulators around the world are pushing through mandates that make climate change mitigation central to listed corporations' due care and diligence, with the TCFD recommendations now the clear preferred disclosure framework, according to EY's 2021 Global Climate Risk Disclosure Barometer. In this report, EY provided a global snapshot of the increasing corporate focus on climate risks and opportunities as pressure from all stakeholders moves them up the boardroom and executive agenda.

Quality over quantity

After examining public disclosures of more than 1,100 companies based on TCFD guidelines, Mathew Nelson, global leader for EY's Climate Change and Sustainability Service, who authored the barometer, said "coverage of disclosures remains ahead of quality."

Although the EY report identified an average coverage of 70% of the TCFD's 11 recommendations across more than 1,100 companies, it found the average quality score was only 42%.

Credit Suisse told Net-Zero Business Daily it welcomes the Federal Council's decision.

"We publicly expressed our support for the TCFD recommendations already in 2017, when TCFD published its final report. In 2020, we included our climate disclosures in the Sustainability Report 2020, and published a TCFD extract against the 11 recommendations of TCFD for ease of reference. We will continue to expand the content included under the TCFD disclosures, in line with emerging standards and practices," the bank wrote in a 19 August email.

Posted 19 August 2021 by Amena Saiyid, Senior Climate & Energy Research Analyst, IHS Markit

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