Swiss government to work with OECD on nature-related financial risks

Project will aim to develop a biodiversity risk and alignment assessment tool for the Swiss financial sector.

Switzerland’s Federal Office for the Environment (FOEN) will collaborate with the OECD secretariat to understand the exposure of Swiss financial institutions to nature-related financial risks, with the aim of developing a biodiversity risk and alignment assessment tool, the two organisations have told Responsible Investor.

The move follows the publication by the OECD in September of a four-step framework for central banks, financial supervisors and commercial banks to identify, prioritise and assess nature-related financial risks.

The report was produced as part of an OECD project on “developing a supervisory framework for financial risks stemming from biodiversity-related losses”, which it is undertaking in partnership with the Hungarian central bank and the European Commission directorate-general for structural reform.

Geraldine Ang, team lead and senior policy analyst at the OCED, told RI that the project with FOEN will assess the biodiversity and nature-related impacts, dependencies and financial risks from Swiss financial institutions’ portfolio holdings.  

“The aim is to understand the exposure of Swiss financial institutions to these risks and the actions that are being undertaken to mitigate them, building on the framework recently launched,” she said.

Nature focus blossoms

The Dutch central bank was a first mover in this space in 2020 when it quantified its financial sector’s exposure to biodiversity loss. The study found that €510 billion of investment was highly dependent on one or more ecosystems.

Since then, several other economies have conducted similar studies. In November, the Central Bank of Lithuania published an assessment of nature-related financial risks in domestic bank loan portfolios, based on the recent OECD framework.

And this summer will see the publication of the results of the implementation of the framework in the context of the Hungarian financial system, Ang told RI.

Juliet Blum from FOEN told RI that the ministry regards its collaboration with the OECD on nature-related risk as “a first step” to measuring the alignment of Swiss financial portfolios with global biodiversity objectives, as agreed in the Global Biodiversity Framework.

She described it as “analogous” to the voluntary biannual Paris Agreement Capital Transition Assessment (PACTA) climate test the Swiss government has conducted with the local financial sector since 2017.

The PACTA test assesses alignment with a 2C climate scenario. The most recent round, conducted in 2022, found that one-third of the 133 financial institutions that voluntarily participated had climate strategies, as well as 2050 climate targets. The next assessment is due to take place this year. 

Regarding the plan to develop a biodiversity risk and alignment assessment tool for the Swiss financial sector, Blum said she could not share further information at this time. 

As a next step, Ang said the OECD will deliver a “draft confidential report” by early June 2024, and then discuss next steps and implementation.