Insights into banks’ climate-related disclosures

As banks prepare to comply with comprehensive climate-related disclosure requirements around the world, KPMG analyzed their challenges and progress. Public interest entities in Switzerland face mandatory climate-related reporting duties when the Climate Ordinance enters into force on 1 January 2024.

The Paris Agreement requires countries to develop long-term climate strategies with a time horizon up to 2050. The international community has responded with individual affirmations to the UN Climate Change Secretariat. Switzerland’s long-term climate strategy includes a pledge to reach net zero emissions by 2050, including partial counting of Swiss-related foreign emissions. 

Stakeholders agree that more transparency on the climate impact of business activities is required to meet the targets. Switzerland joins many other countries in introducing new rules on non-financial reporting requirements over the course of 2022. 

The Swiss Federal Council signed up to the Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) proposing mandatory climate disclosure rules. The provisions are implemented through the Ordinance on Climate Disclosures (Climate Ordinance), which applies to large public interest entities and enters into force on 1 January 2024 (i.e. the first disclosures will be required on the 2024 business year, to be published in 2025).

Under Swiss law, climate disclosures will have to be published in the report on non-financial matters (Articles 964a-c of the Swiss Code of Obligations). However, it’s important to note that any climate matters that are financially material need to be captured in the financial reporting. Given the significance of climate change in terms of risk – but also opportunities – for financial institutions, they should all be considering where and to what extent their exposure should be reported. Indeed, in phase 1 of this year’s benchmarking analysis we only looked at banks’ climate-related disclosures in their annual reports.

As Switzerland’s sustainability disclosure requirements draw near, it is interesting to look at what’s happening in the international community. The first two IFRS® Sustainability Disclosure Standards are expected to come out in June 2023, while the EU and the US are developing their own specific standards. Against this background, sustainability reporting including climate-related disclosures is high on the agenda for all banks.  

In KPMG’s Phase 1 report of the benchmarking analysis on how banks reported on climate-related matters in 2022, we took a look at the climate-related disclosures in 2022 annual reports made by 35 major banks around the world. In the following, we share some highlights from the analysis.

The location and timing of climate-related disclosures make it challenging to understand the big picture: details are often provided in multiple documents, in different sections of reports and published on different dates.

Banks also generally provide separate disclosures for each of the four TCFD pillars – governance, strategy, risk management, and metrics and targets –  in their annual reports. However, it is less clear how the four pillars interact.

Although the word “climate” is starting to appear more frequently in the financial statements, the disclosures are limited. Many of the banks that mention climate in their financial statements do so in the context of disclosing climate-related impacts. In most cases, these banks note that the quantitative impact on the financial statements is not considered material at this time or in the short to medium term. 

The forthcoming reporting standards should positively impact companies’ ability to make connections and identify climate-related impacts in the financial statements.

Data challenges – including availability, reliability and time lags – are impacting the scope and extent of banks’ climate-related scenario analysis and the disclosures provided on metrics and targets. Some banks manage this by explaining their use of estimates. 

Many banks still classify climate-related risks as a principal risk with both financial and non-financial impacts. Credit risk remains the focus when it comes to the area most impacted by climate-related risks, followed by reputation and operational risks. In 2022, notably, more banks identify litigation or liability risk as an area impacted by climate-related risks – sometimes mentioned together with greenwashing. 

Forty percent of banks are already obtaining (mostly limited) assurance over selected climate-related information within the annual report, while 23% auditors’ reports acknowledge climate in 2022.

If climate is mentioned in the auditors’ report, generally what is included is the involvement of climate-related risk specialists, the impact on the going concern assessment and the assessment of climate-related disclosures in the financial statements.   

Our Phase 1 report includes our more detailed findings about banks’ financial reporting and our observations for each of the four TCFD pillars. In June, we will publish our follow-on Phase 2 report on how banks align with the TCFD framework. 

Contact us to learn more about these results or to discuss your own climate-related disclosure journey.