Management and governance of climate- and other nature-related financial risks

Physical nature-related risks, such as extreme weather events and biodiversity loss, as well as transition risks arising from the shift to a climate- and nature-compatible economy, are gaining in significance and present financial institutions with substantial challenges.

Nature-related financial risks stem from exposure to physical climate and other nature risks as well as to transition risks and describe the potential negative financial impacts arising from them.

Regulators, investors and other stakeholders increasingly expect financial institutions to develop clear strategies for managing these risks.

FINMA circular on nature-related financial risks: Requirements, scope, and timeline for implementation

Through the "Nature-related financial risks" circular, FINMA sets out clear and comprehensive requirements for managing and governing climate and other nature-related financial risks. The objective of the circular is to enhance the resilience of financial institutions to these risks and to safeguard both, customers and the Swiss financial sector.

The scope of the circular is limited to specific financial institutions:

• Banks, including branches of foreign banks, financial groups, and conglomerates
• Insurance companies, including branches of foreign insurance companies, insurance groups, and conglomerates

The implementation of the requirements is planned to be phased in starting from January 1, 2026, tailored to the size and category of each institution, and initially applies solely to climate-related financial risks.

Provisions of the FINMA circular on nature-related financial risks

The provisions of the circular can be divided into common requirements as well as bank-specific and insurance-specific requirements.

Common provisions

• Governance: Defining the tasks, competencies, and responsibilities for managing nature-related financial risks
• Risk identification, materiality assessment, and scenario analyses: Periodic identification of nature-related financial risks and their assessment in terms of financial materiality based on scenario analyses, with corresponding documentation of the approach
• Risk management: Integration of nature-related financial risks into the institution-wide risk management and internal control system, taking appropriate risk indicators into account
• Stress tests: Integration of significant nature-related financial risks into stress tests and the assessment of the adequacy of financial resources allocated

Specific provisions

• Banks must consider nature-related financial risks in the areas of credit, market, and liquidity risk management, as well as manage operational risks. Suitable tools and processes must be implemented to mitigate and control such risks. Additionally, nature-related compliance, legal, and reputational risks must be integrated into relevant processes and addressed appropriately.
• Insurance companies must take nature-related financial risks into account in their insurance activities and integrate them into relevant processes, policies, and controls. Nature risks must also be integrated into well-known risk areas such as market, credit, liquidity, and operational risks, as well as into nature-related compliance, legal, and reputational risks. Nature-related financial risks must be analysed within the framework of the ORSA and considered by the responsible actuary, with appropriate inclusion in risk-related reporting.

Our approach to implementing the FINMA circular on nature-related financial risks

We take a comprehensive consulting approach, specifically tailored to meet the unique needs of financial institutions, to support you in implementing the FINMA circular. Our team assists you in identifying and assessing nature-related financial risks and in designing an appropriate governance structure to address these risks efficiently. Through targeted analyses and the development of customised solutions, we help you meet regulatory requirements and strengthen your risk management.

We offer the following services:

• Analysis and assessment of nature-related financial risks: We identify potential physical and transitional risks and assess their impact on your business areas.
• Integration of risks into governance, risk management, and control systems: We help you seamlessly integrate nature-related financial risks into your existing processes and internal control systems.
• Support with scenario analyses and stress tests: We support you in considering climate scenarios in your stress and solvency tests to assess the impact under various plausible assumptions. 
• Support with implementing regulatory requirements: We assist you in conducting a gap analysis based on your existing processes, developing action plans, and implementing them to meet the requirements of the FINMA circular.

Our added value

• Extensive expertise in sustainability and risk management
• Local expert team with access to an international network
• Tailored solutions designed to meet your specific needs
• A collaborative approach helps not only to address risks, but to identify opportunities
• Proven track record of successfully advising financial institutions over many years

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