Sustainable finance impacts Swiss financial institutions across numerous functions. The successful implementation of the various Swiss and EU regulatory initiatives requires a clear view on upcoming milestones. Based on this, firms must assess their impact and take a coordinated approach.
The entry into force of the Sustainable Finance Disclosure Regulation (SFDR) in 2021 marked the beginning of a sustainable finance regulatory (r)evolution that is keeping not only EU-based but also Swiss financial institutions on their toes. The two main objectives followed by policy makers' initiatives are to mainstream the consideration of sustainability across the value chain while combatting greenwashing.
Swiss financial institutions will be affected by various 2022 sustainable finance milestones at both national and EU level.
Sustainability considerations: It's not just about stock picking anymore
Sustainability considerations must encompass more than just investment analysis: They should be included in the wider context of risk, operations, product governance and client preferences. The EU has therefore amended various existing policies which often directly or indirectly impact Swiss financial institutions:
- Sustainability considerations have been integrated into AIFMD, UCITS Directive, MiFID II and IDD. The new AIFMD and UCITS Directive requirements are effective as of 1 August 2022, those of the MiFID II Regulation and IDD by 2 August 2022. The amendments to the MiFID II Directive on product governance obligations will be adopted and published by Member States by 21 August 2022 and must be applied by the market as of 22 November 2022. In general, the requirements mandate the consideration of sustainability risk in investment decisions and the consideration of sustainability factors in governance and organization, product development, risk management and suitability. Read about the key impacts here.
- The legislative proposal amending CRR II will require large banks with publicly listed issuances to disclose information on ESG risks in their Pillar 3 disclosures as of 1 June 2022.
- Solvency II amendments require insurance companies to include the integration of sustainability risks in their governance by 2 August 2022.
Transparency: The fight against greenwashing is on
Switzerland and the EU are pushing for harmonized sustainability disclosure through various initiatives. Swiss financial institutions should take note of the following milestones in 2022:
- The Ordinance published on 3 December 2021 will amend the Swiss Code of Obligations. It requires public interest entities (including all financial institutions) to report on non-financial information and, where relevant, to conduct due diligence regarding child labor and/or conflict minerals. To ensure compliance with the requirements by reporting year (RY) 2023, firms should start preparing in 2022. Read our related blog "RBI – indirect counterproposal" (in German).
- FINMA has amended disclosure requirements for banks and insurers (Circulars 2016/1 and 2016/2) belonging to supervisory categories 1 and 2. As of RY 2021, they must disclose on climate risks according to the guidelines of the Task Force on Climate-related Financial Disclosures (TCFD). An extension of scope to all financial institutions is foreseen for disclosures covering RY 2023 as part of the amendments to the Swiss Code of Obligations resulting from the indirect counterproposal of the responsible business initiative (see above). Firms new to TCFD reporting should not underestimate the required preparation effort. Find more information on TCFD.
- The proposal for an EU Corporate Sustainability Reporting Directive (CSRD), replacing the current Non-Financial Reporting Directive (NFRD) by RY 2023, was published in April 2021. Switzerland-based firms may also fall into its scope. The adoption of the draft standards developed by EFRAG is expected by October 2022. You will find an overview of the CSRD's key changes and impacts.
- The EU Taxonomy Regulation applies as of 1 January 2022 and Swiss financial undertakings must take action if they distribute financial products within the EU and/or if they are under the scope of the NFRD. Read more about how the EU Taxonomy impacts the Swiss financial industry here.
- Under SFDR, ESG-minded financial products distributed within the EU must include sustainability disclosures in periodic reports as of 1 January 2022 and disclose on adverse sustainability impacts by 30 December 2022.
- The adoption of the draft SFDR and EU Taxonomy Regulatory Technical Standards (RTS) and, by consequence, their application date have been delayed twice. Adoption is now expected to take place in 2022, leaving firms until 1 January 2023 to implement the requirements.
- The Federal Council has instructed the Federal Department of Finance, in cooperation with the Federal Department of the Environment, Transport, Energy and Communications, and FINMA, to propose by the end of 2022 how the financial market law could be adapted to put a stop to greenwashing.
Biting the bullet
The upcoming regulatory initiatives around sustainable finance are demanding, especially for Swiss players who must often meet both Swiss and EU requirements. Only through a clear view on regulatory milestones and their impacts can firms take timely action and achieve cross-functional involvement in policy implementation. A proactive firm-wide approach will ultimately ensure compliance and even build a competitive advantage with regards to sustainable finance.
Timeline of the upcoming Swiss and EU sustainable finance regulatory milestones
Click the image on the right to enlarge it.