The Swiss financial regulator FINMA has introduced a new circular that marks a critical shift in the management of nature-related risks, including environmental degradation and biodiversity loss. This development goes beyond mere regulatory obligations; it is crucial to safeguard an institution’s future as these risks increasingly impact financial stability. By proactively integrating nature-related risk management, financial institutions can protect their assets, strengthen their market position, and take a leadership role in the growing green economy. Act now to stay ahead and be at the forefront of these transformative changes.

The FINMA circular introduces a comprehensive framework for managing nature-related financial risks, providing essential guidance for banks and insurers. The framework underscores the importance of strong governance structures, precise risk identification methods, and detailed assessment and reporting processes. By integrating these components, financial institutions can enhance their resilience and stability in response to environmental changes.

As part of the regulatory landscape, FINMA’s Circular 2024 requires financial institutions to establish robust frameworks for managing nature-related financial risks. The policy outlines the key requirements related to governance, risk identification, assessment, and sector-specific guidelines, providing a structured approach for institutions to integrate these risks into their overall risk management practices.

  • Governance and responsibilities: Clearly defined roles and responsibilities for managing nature-related financial risks. Emphasis on internal and, where necessary, external reporting to ensure transparency and accountability.
  • Risk identification and assessment: Regular identification of potential nature-related financial risks. Evaluation of the materiality of these risks on an institution’s risk profile. Consideration of both direct and indirect exposures to natural hazards.
  • Scenario analysis and stress testing: Utilization of scenario analysis to understand potential future developments and their impacts. Integration of nature-related risks into stress testing exercises for a comprehensive risk management approach.
  • Sector-specific requirements: Tailored requirements for banks, including credit, market, and liquidity risk management. Specific guidelines for insurers focusing on underwriting, asset management, and solvency assessment.

Implementing the framework outlined in the FINMA circular is crucial for financial institutions to navigate the increasing environmental risks. By adhering to these guidelines, institutions can better manage their exposure to natural hazards, ensuring long-term financial stability and regulatory compliance. This proactive approach not only protects the institutions themselves but also contributes to the broader goal of achieving a sustainable and resilient financial system.

BearingPoint can help your institution implement the requirements of FINMA’s Circular 2024 by offering expert advice on governance structures, risk identification and assessment, scenario analysis, and sector-specific risk management strategies. We help you navigate the complexities of nature-related financial risks, ensuring you are well-positioned to meet regulatory standards while strengthening your market position in the evolving green economy.

  • Download: FINMA Circular 2024
    Download: FINMA Circular 2024 778.32 KB Download

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