Disclosure and taxonomy

The Swiss Bankers Association (SBA) supports measures for the disclosure of climate risks, while at the same time advocating a principles and risk-based, proportionate approach. Along with the general trend towards greater disclosure, different taxonomies are currently being developed worldwide. These are classification systems for environmentally sustainable activities. Taxonomy initiatives in the EU and other financial centres are evolving very rapidly. From Switzerland’s perspective, it is still too early to agree on a specific regulatory approach. 

Disclosure of climate risks

Improving the transparency of climate-related financial risks is a crucial step towards creating a more sustainable Swiss financial centre. The SBA believes the best approach is to disclose climate risks in accordance with international standards, apply the rules in a principles-based manner and with due proportionality, and engage with the real economy. As a consequence, the SBA supports the proposed FINMA regulation on the disclosure of climate risks (see Response to consultation).

SBA’s position

  • The SBA views the proposal to align regulation with standards set by the Task Force for Climate-Related Financial Disclosures (TCFD) as a positive step. The TCFD reference framework is broadly recognised and established worldwide.
  • Equally important is the notion that such regulation should be based on principles and risks, with proportionate implementation. Principles-based regulation is an effective way of allowing every systemically important bank to implement the rules in proportion to their size, structure, complexity, business activity and risk exposure. This should ensure rapid, uncomplicated and flexible implementation, especially during the early stages.
  • Finally, it is essential to involve the wider economy in the disclosure initiatives, as financial institutions require reliable third-party data in order to accurately quantify their climate risks. This data is not yet widely available in sufficient quantities, however. As a supporting measure, a new reporting obligation for “public interest entities” (PIEs) has been introduced following the implementation of the Counterproposal to the Responsible Business Initiative. Ideally this should be part of the broader non-financial reporting obligation that would support financial institutions in fulfilling their duty of product-level reporting.


Taxonomy is a key instrument for assessing the sustainability of business activities. It provides a standard definition of sustainability and thus clarifies the central terms that are essential for measurability and comparability. International initiatives on taxonomy are moving along at pace. Switzerland now has to decide how to position itself with regard to taxonomy.

SBA’s position

  • The Federal Council wants to develop the Swiss financial centre into a leading international hub for sustainable finance. The industry’s strongest leverage is its asset management business. A distinction is therefore necessary between the investment and finance sides. International regulatory trends, such as discussions on the EU Action Plan and the associated EU Taxonomy, thus require separate analysis for investments and for finance. However, the criteria of efficiency and proportionality must always be taken into account.
  • The assessment should focus on which objectives defined by EU regulation require Switzerland to take specific action, and where the existing regulatory framework is either already adequate or the objectives can be achieved by means other than government regulation. Any state regulation should concentrate on those areas where legislative intervention is deemed necessary to ensure equivalence.
  • Since EU discussions about regulation still lack clarity, important details on implementation have not been finalised and other international initiatives are under way, a staggered approach would be most appropriate for Switzerland. It is important to establish what changes are necessary to ensure Switzerland becomes – and remains – a leading hub for sustainable finance and whether voluntary measures by the industry (guidelines, self-regulation) or government regulation are the best way to implement the changes. This approach also allows for a more flexible time horizon. Objective analysis should be the starting point for this process.

The Swiss banking sector is currently in the process of comparing different international taxonomic approaches with one another, and with the existing conditions in Switzerland. The aim is to form a clear picture of where relevant differences lie and to what extent Swiss legislation may need adapting. The SBA has set up an interdisciplinary “Taxonomy” working group to explore the possible options.

Overview of international developments

The attention of many investors is currently on the EU Action Plan and the new Sustainable Finance Disclosure Regulation (SFDR), which complement the Non-Financial Reporting Directive (NFRD) and the EU Taxonomy for Sustainable Activities. Taken as a whole, the proposed regulations can seem overwhelming, and potentially even confusing. In order to judge the nature of future developments, we have to establish exactly how they are interconnected. This will in turn determine the possible need for action in Swiss financial market regulation. Developments linked to Regulation (EU) 2020/852, Sustainable Finance Taxonomy, as well as alternative taxonomy initiatives in other financial centres, are progressing rapidly. It would therefore be premature to settle on a specific regulatory approach.

Below is an overview of the three legal instruments that are all part of a series of EU regulations relating to the EU Action Plan for Sustainable Finance:

  • The NFRD is the EU legal framework for regulating the disclosure of non-financial information by companies. It was ratified in 2014 and requires companies to report ESG information as of 2018 (for the 2017 financial year). The NFRD is fairly flexible – it only applies to “public interest entities” (essentially fairly large companies) and incorporates what are known as “comply or explain” clauses. These allow companies not to disclose information, as long as this refusal is made public, and reasons are given. 
    To date, Switzerland imposes no comparable reporting obligations on companies. The Counterproposal to the Responsible Business Initiative should see appropriate provisions included in the Swiss Code of Obligations. The consultation process took place on 14 April 2021.
  • The SFDR is the new EU regulation that introduces rules for financial market players to provide information on the integration of sustainability risks. The SFDR applies at both the “entity level” (in other words, the financial company must report how the entire organisation manages these risks) and the “product level” (companies must provide information on the potential adverse impacts (PIAs) of sustainability risk on their financial products). The SFDR only contains a few “comply or explain” provisions (for example, smaller entities with less than 500 employees are not required to report on due diligence processes). The regulation requires all financial market participants to report on sustainability risks, even if they do not offer any ESG-related products. If they do have such products, they must provide additional information, depending on how “green” the products are. The SFDR came into force on 10 March 2021. 
    Swiss financial service providers may potentially be affected by the EU regulation because of their relationships with clients domiciled in the EU, or by virtue of the financial instruments they offer as part of their financial services. A distinction has to be made here between banks with an international orientation (investment advisory, asset management) and those with a domestic focus. The former tend to generate a substantial portion of their revenues from offerings that may fall within the scope of the regulations. Banks focused on the domestic market are not affected, or only marginally so – for example, because they use EU financial products as part of their asset management or investment advisory services.
  • The EU Taxonomy Regulation, which entered into force on 12 July 2020, is an EU-wide classification system for environmentally sustainable activities. In essence, the EU Taxonomy attempts to answer the question: What qualifies as environmentally sustainable activity? The EU Taxonomy defines six interlinked environmental objectives and stipulates that an economic activity must meet at least one of these objectives without at the same time doing significant harm to the other objectives1.
Differences and similarities between the SFDR, NFRD and EU Taxonomy Regulation

In the first instance, we need to be conscious of the different legal status of the SFDR, EU Taxonomy and NFRD. The NFRD is based on an older EU directive (2014). Directives require EU member states to implement the general requirements as national regulations. By contrast, the SFDR (2019) and the EU Taxonomy (2020) are based on a European regulation that can be applied immediately and does not need to be incorporated into national legislation.

  • The NFRD applies to all types of corporation. For investors, the NFRD is therefore mainly relevant because it stipulates how investee companies must report ESG data.
  • The SFDR, on the other hand, primarily affects financial market players and ensures transparency about how they report their sustainability risks to their target groups, such as retail investors.
  • The EU Taxonomy was introduced to provide a common reference point for determining whether an economic activity is genuinely sustainable. This means the EU Taxonomy is in a position to elaborate the finer points of the regulations set out in the SFDR and NFRD.

Details of the links between the three framework regulations will be specified more closely in the coming years. Although the SFDR came into force on 10 March 2021, it is still in “Development Level 1”. As with many EU regulations, Level 1 sets out the overall underlying principles for a regulation, without specifying the technical details. SFDR Level 2 will enter into force as soon as the regulation is augmented by Regulatory Technical Standards (RTS), which are currently being developed. The RTS will also provide more detailed guidance on the linkage with the EU Taxonomy, such as the “do no significant harm” concept that is integral to the SFDR.

What initial conclusions can we already draw from the developments to date? The current versions of the SFDR and NFRD do not yet link disclosure requirements with the EU Taxonomy. This is likely to change soon, especially once the RTS are specified and rolled out for the SFDR (European regulators published their final draft of the SFDR RTS at the start of February 2021). In addition, the NFRD is currently in the consultation phase and is due to be published imminently. Two important interconnections should already be noted, however: 

  • First, the EU Taxonomy’s scope of application will be defined by the NFRD und SFDR. In other words, if an organisation is in scope for the NFRD and/or SFDR, the EU Taxonomy will also be relevant for the firm’s disclosure policy. At the same time, it is important to note that the EU Taxonomy defines additional reporting obligations on top of those required by the NFRD and SFDR.
  • Second, the EU Taxonomy requires companies (including asset managers) to report the percentage of their turnover, capital expenditure and operational expenses that are aligned with the EU Taxonomy. In addition, asset managers will have to report the percentage of their portfolio invested in activities aligned with the EU taxonomy.
The immediate future

In the coming years we should see a torrent of technical specifications covering all three regulations. SFDR Level 2 Reporting will commence as soon as RTS standards become part of reporting (probably mid-2023). In addition, annual comparisons of data points will probably become binding under the SFDR by 2024. The six environmental objectives set by the EU Taxonomy will be amplified by technical screening criteria, some of which are likely to be published very soon.

At present we are seeing the conditions for non-financial reporting and sustainable finance being shaped by extensive European regulations intended not only to increase transparency, but also to allow comparisons and benchmarking. However, we obviously need to prepare ourselves for the many clarifications required until institutionalised reporting cycles take full effect and are able to unleash their potential. As far as Switzerland’s regulatory approach is concerned, particular attention must therefore be paid to the aspects of efficiency and proportionality.

In many areas, current developments in the EU have not been fully elaborated and therefore lack clarity. Switzerland can only respond to the situation with a staggered approach. It should follow an approach to regulation that is closely geared towards the EU Taxonomy and to other major taxonomies, while at the same time remaining faithful to Switzerland’s customary regulatory approach: one based on principles and risks, and compatible with the concept of proportionality.

1  “Environmentally sustainable” activities must satisfy all four of the following conditions:

  1. They must contribute “substantially” to at least one of the six environmental objectives defined in the regulation.
  2. They must “do no significant harm” to any of the other objectives.
  3. They must satisfy the “technical screening criteria”, which specify what “substantial contribution” and “significant damage” mean in the case of each objective.
  4. They must be compatible with “minimum safeguards” for employees.


Hans-Ruedi Mosberger
Head of Sustainable Finance
+41 58 330 62 61