Banks' TCFD alignment and transition plans

In Phase 2 of our benchmarking analysis, we look at how banks’ climate-related disclosures align with the TCFD recommendations.

Banks have laid the foundation for their climate-related strategy –  now they should be building their detailed transition plans with clear actions and interim targets. In Switzerland, public interest entities will be required to publish transition plans for the 2024 financial year.

Phase 1 of KPMG’s recent benchmarking analysis of 35 global banks examined the climate-related disclosures made as part of their 2022 annual reports. In this second phase, we turn our focus to how these banks’ climate-related disclosures align with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The scope of this second analysis is extended to include standalone reports, such as climate and sustainability reports; this is where most banks provide their TCFD-aligned disclosures.

This blog article looks at some of the key findings arising from the analysis – and what they mean for Swiss banks.

Patrick Schmucki

Director, Financial Services, Corporate Responsibility Officer

KPMG Switzerland

Commitment to net zero

Many banks have an overarching commitment to achieve net zero by 2050, including in their financed and facilitated emissions. This trend is also something we see in Switzerland, with various members of Swiss Sustainable Finance having pledged to achieve net zero emissions by 2050 and halve them by 2030. Globally, banks are disclosing the focus areas of their climate-related strategy, which often relate to providing sustainable or green financing, supporting customers in their transition, and reducing emissions across both their own operations and their financed and facilitated emissions.

Time for transition plans

In a next step, banks should give users details of how they plan to execute their strategy to achieve a low-carbon economy. These “transition plans” should include climate-related metrics and targets for tracking their progress. Transition plans are a key focus of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the new ISSB™ standards.

The Swiss Federal Council has already signed up to the TCFD guidance 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. This means that in-scope companies will be required to make their first disclosures on the 2024 financial year, to be published in 2025.

Article 3 para. 2 letter c of Switzerland’s Climate Ordinance provides that, where possible and appropriate, implementation of the recommendations under paragraph 1 of the Climate Ordinance shall take the TCFD’s Guidance on Metrics, Targets, and Transition Plans into account. Article 3 para. 3 letter a goes on to specify that implementation of the recommendations under para. 1 letter b shall include a transition plan that is comparable with the Swiss climate goals.

Slow progress

A few of the banks in the analysis had already developed and disclosed details of their initial transition plans in 2022. However, many are yet to share their concrete short-, medium- and long-term actions to achieve their intended progress toward their overall net-zero commitment by 2050. With the recent adoption of the Climate Act by Swiss voters, the national climate targets are now enshrined in legislation. Large Swiss banks that are in scope of the Climate Ordinance will need to consider what steps still need to be taken to be ready to publish transition plans for the 2024 financial year that are in line with the Swiss climate targets. 

Many banks have also not yet clearly set out their interim targets, making it difficult for users of disclosures to assess banks’ effort, feasibility and progress towards their overall net-zero objective, as well as whether they have identified appropriate strategic focus areas that can help support them to achieve their goals.

Action needed

Banks have significant ground to cover to meet new sustainability reporting requirements. One key area where they should push ahead relates to scenario analysis. According to the Swiss Climate Ordinance, the inclusion of sector-specific guidance for financial institutions when implementing the recommendation under paragraph 1 letter d shall comprise forward-looking, scenario-based climate compatibility analyses. While most banks currently use scenario analysis to assess risk, it’s not yet clear how they are using it to evaluate the resilience of their climate-related strategy and inform their strategic planning. Also, disclosures on scenario analysis are not comprehensive at this stage, as they often cover only a portion of lending exposures and are subject to data limitations.

This brings us to data, which continues to be a significant challenge. To calculate emissions, banks need data from their customers, which is often limited in availability, variable in quality and collected with a time lag. This means that disclosed emissions, often based on data from one or two years ago, may continue to be subject to significant estimation uncertainty.

Learn more

Read our previous blog article for highlights from Phase 1, including relevant insights from a Swiss perspective. The full Phase 2 analysis is available to download here