Swiss Bankers Association issues new client information on ESG-risks



In June 2023, the Swiss Bankers Association (SBA) has included a new section on ESG-risks in its information brochure on "Risks Involved in Trading Financial Instruments". This new section supplements the November 2019 edition of this brochure intended to be communicated to clients.

According to the Financial Services Act (FinSA), financial service providers have a duty to inform their clients of risks. In practice, Swiss banks and Swiss securities firms inform their clients on risks associated with trading financial instruments by using this brochure prepared by the SBA. This practice is generally in line with the expectations of the Swiss Financial Market Supervisory Authority (FINMA), even if the duty to inform does not end with this brochure alone. Other financial institutions when relevant may also use this brochure to inform their clients in accordance with the requirements set out in the FinSA.

ESG-risks presentation

The sustainability-related financial risks defined in the new section as "ESG-risks" are broken down in the following three now-standard sub-risks: environmental risks, social risks and governance risks.

The text makes clear that ESG-risks are events or situations that are currently having a "negative impact on economic, cost or reputation factors", and thus also on "the value of a company or the market price of financial instruments or could potentially do so in future". This statement immediately follows the general presentation of the acronym "ESG" and precedes the definitions of the risks and sub-risks themselves. In this way, the attention of clients and investors is generally drawn on the consequences in case of risk materialisation. This presentation of the risks, which does not follow a strict legal order (i.e. "definitions first") pursues an informative aim above all, which is coherent with the purpose of the SBA brochure.

ESG-risks definition

Environmental risks are divided into (i) physical (e.g. damage caused by climate change phenomena, such as storms), which threaten or harm a company’s economic activities or assets; and (ii) transition risks that include regulatory risks liability or legal risks, such as the negative impact on a company's profitability resulting from the introduction of a tax on CO2 emissions. This division between physical and transition risks can also be found in the FINMA's practice, which is based on international standards and/or principles, such as those developed by the Central Banks and Supervisors Network for Greening the Financial System (NGFS), the International Organisation of Securities Commissions (IOSCO) or the Basel Committee on Banking Supervision (BCBS).

As with the definition of environmental risks, social risks are defined by means of examples, such as risks arising from "violation of employment standards", "poor product safety" and "high staff turnover". Such a list is not a definition in a strict sense. However, this type of illustrative list used as a formal definition is not new in the Swiss legal framework. The Swiss legislator has used this type of exemplary list instead of strict definitions, such as one defining the notion of a "structured product" in the FinSA. Governance risks are not strictly defined, even if key elements are present, such as unequal treatment of shareholders, inadequate risk management or remuneration systems.

This lack of clear-cut definitions deriving from the acronym ESG is a longstanding debate among both scholars and market participants. The difficulty with dealing with definitions may also add excessive complexity to legal texts. Finding the right balance will be difficult, but necessary to ensure a certain legal predictability and security. In any case, it is important to stress that the SBA brochure is not a legislative or governmental production, but a private initiative aimed at informing clients.

ESG-risk integration

The new section recalls that ESG-risks and characteristics can be integrated into asset management and investment advisory processes using a different range of ESG approaches. The brochure describes none of these approaches. Instead, the investor is warned that all approaches are "evolving rapidly" and that they pursue "different aims". This prudent reference to ESG-approaches reflects the difficulty in adopting – even for the present – a definitive view on this and may be the sign of a necessary maturation within the industry. It should be noted, however, investors are informed without any ambiguity on the impact of the ESG-risks as well as on the need to incorporate ESG-risks into their risk diversification decisions.


The revision of the SBA brochure and the corresponding inclusion of this ESG-risks section is a further step towards taking into account ESG under Swiss law even at this stage where there is an absence of formal amendments of existing financial law regulations. This information focuses on ESG without dealing directly and expressly with impact investing and related risks, even if investors are informed that the ESG approaches are not all "geared to measurable positive impact on ESG-factors such as reducing pollution".

For more information on ESG and its impact on the banking and finance sectors, contact your CMS client partner or local CMS expert.