FINANCED EMISSIONS REPORTING: LEGAL AND REGULATORY FRAMEWORK

1. INTRODUCTION

Financed emissions reporting refers to the measurement, calculation, disclosure and monitoring of greenhouse gas emissions associated with the lending, investment and financing activities of banks, insurance companies, pension funds and other financial institutions.

Unlike direct operational emissions, financed emissions arise from the activities of borrowers, investee companies and projects supported by financial institutions. These emissions are generally classified as Scope 3, Category 15 emissions under the Greenhouse Gas (GHG) Protocol.

Financed emissions reporting has become an important component of climate-risk management, sustainable finance, corporate accountability and financial transparency. Financial institutions are increasingly expected to identify their exposure to carbon-intensive industries, assess climate-related financial risks and disclose their contribution to the transition towards a low-carbon economy.

2. INTERNATIONAL LEGAL AND REGULATORY FRAMEWORK

A. GREENHOUSE GAS PROTOCOL

The GHG Protocol Corporate Value Chain (Scope 3) Standard provides the principal methodology for identifying and calculating emissions associated with investments and financing activities.

It establishes principles concerning:

Organisational and operational boundaries.

Emissions attribution.

Data quality and estimation.

Reporting consistency.

Scope 3 Category 15 investment emissions.

B. PARTNERSHIP FOR CARBON ACCOUNTING FINANCIALS (PCAF)

PCAF provides a widely recognised accounting methodology for measuring financed emissions.

Its Global GHG Accounting and Reporting Standard for the Financial Industry addresses emissions associated with:

Business loans.

Listed equity and corporate bonds.

Project finance.

Commercial real estate.

Mortgages.

Motor vehicle loans.

Sovereign debt.

PCAF is a voluntary accounting standard rather than legislation. However, financial institutions may use it to support regulatory and sustainability disclosures.

C. IFRS S2 – CLIMATE-RELATED DISCLOSURES

IFRS S2, issued by the International Sustainability Standards Board, establishes requirements for disclosing material climate-related risks and opportunities.

It addresses greenhouse gas emissions, including relevant Scope 3 emissions, and contains specific requirements concerning financed emissions for applicable financial institutions.

D. EUROPEAN UNION SUSTAINABILITY REPORTING FRAMEWORK

The Corporate Sustainability Reporting Directive (CSRD) and European Sustainability Reporting Standards (ESRS) establish sustainability reporting requirements for entities within their scope.

ESRS E1 addresses climate change and greenhouse gas emissions. Financial institutions must consider applicable reporting requirements concerning their value chains and financed emissions.

3. FINANCED EMISSIONS REPORTING FRAMEWORK IN SWITZERLAND

Switzerland has developed a climate-disclosure framework that is particularly relevant to banks, insurance companies and large financial institutions.

A. SWISS CODE OF OBLIGATIONS

The Swiss Code of Obligations contains non-financial reporting requirements under Articles 964a–964c for qualifying companies.

These provisions address environmental matters, social issues, employee concerns, human rights and anti-corruption.

B. SWISS CLIMATE DISCLOSURE ORDINANCE

The Ordinance on Climate Disclosures requires qualifying large public-interest companies to report on climate-related matters in accordance with recognised reporting frameworks.

The disclosure framework covers climate governance, climate strategy, risk management, metrics and targets.

C. FINMA SUPERVISION

FINMA addresses climate-related financial risks through its supervisory framework, including FINMA Circular 2026/1 on nature-related financial risks, where applicable.

Financial institutions must consider material climate-related financial risks within their governance and risk-management arrangements.

D. SWISS NATIONAL BANK

The Swiss National Bank contributes to the analysis of climate-related financial stability risks and supports research into the relationship between climate change and the financial system.

4. CORE LEGAL REQUIREMENTS FOR FINANCED EMISSIONS REPORTING

A. IDENTIFICATION OF FINANCED EMISSIONS

Institutions should identify emissions associated with their lending and investment portfolios, including exposure to carbon-intensive industries.

B. EMISSIONS CALCULATION

Financial institutions should apply recognised methodologies such as PCAF and the GHG Protocol, ensuring that attribution factors and underlying assumptions are documented.

C. DATA QUALITY

Institutions should distinguish between verified emissions information, reported estimates, industry averages and proxy data.

D. CLIMATE-RISK ASSESSMENT

Financed emissions should be considered alongside physical climate risks, transition risks and potential credit exposures.

E. TRANSPARENCY AND DISCLOSURE

Reports should explain calculation methodologies, reporting boundaries, data limitations, portfolio coverage and relevant emissions targets.

F. INTERNAL GOVERNANCE

Boards, senior management, sustainability teams and risk-management departments should have clearly allocated responsibilities for climate reporting.

5. RELEVANT CASE LAWS AND JUDICIAL AUTHORITIES

There is no established body of Swiss case law directly imposing liability specifically for inaccurate financed-emissions calculations. However, climate-accountability, corporate-governance, environmental-disclosure and fiduciary-duty judgments provide important analogous legal principles.

1. Verein KlimaSeniorinnen Schweiz and Others v. Switzerland (2024), ECtHR, Application No. 53600/20

Classification: Direct authority on state climate obligations; analogous authority on financial-sector climate accountability.

The European Court of Human Rights found that Switzerland had violated Article 8 of the European Convention on Human Rights because of deficiencies in its climate-protection framework.

The judgment emphasised the importance of effective climate policies and appropriate regulatory action.

Relevance: It strengthens the legal importance of credible climate governance and reliable climate-related information in Switzerland.

2. Urgenda Foundation v. State of the Netherlands (2019), Supreme Court of the Netherlands

Classification: Analogous authority.

The Supreme Court upheld the obligation of the Dutch government to take sufficient measures to reduce greenhouse gas emissions.

The judgment recognised the connection between climate change, human rights and governmental responsibility.

Relevance: Financial institutions may consider this reasoning when evaluating climate-related legal and transition risks associated with financed activities.

3. Neubauer and Others v. Germany (2021), German Federal Constitutional Court

Classification: Analogous authority.

The Court held that Germany's climate legislation inadequately protected fundamental rights because it postponed substantial emissions-reduction burdens to future generations.

Relevance: The decision supports the importance of credible long-term emissions targets and transparent transition planning.

4. Milieudefensie et al. v. Royal Dutch Shell plc (2021), District Court of The Hague

Classification: Analogous authority.

The District Court imposed a climate-related emissions-reduction obligation on Shell, considering its corporate responsibility and the broader value chain.

The Hague Court of Appeal subsequently overturned the specific reduction order in its 2024 judgment, while recognising that companies have responsibilities concerning climate change.

Relevance: The litigation demonstrates the potential legal consequences of corporate climate strategies and emissions-management failures.

5. ClientEarth v. Shell Plc and Others (2023), High Court of England and Wales

Classification: Analogous authority on directors' duties.

The English High Court considered a derivative claim alleging that Shell's directors had breached their duties concerning climate-risk management.

The application for permission to continue the derivative claim was refused.

Relevance: The proceedings illustrate how directors' climate-risk decisions, governance processes and corporate accountability may become subjects of litigation.

6. McGaughey and Davies v. Universities Superannuation Scheme Ltd (2023), Court of Appeal of England and Wales

Classification: Analogous authority on fiduciary duties and investment governance.

The litigation concerned allegations against pension-fund directors relating to investment decisions and climate-related risks. The Court of Appeal upheld the refusal of permission to pursue the derivative claim.

Relevance: The case illustrates the legal complexities of challenging investment decisions on climate grounds and the importance of fiduciary governance.

7. R (Friends of the Earth Ltd) v. Secretary of State for Business, Energy and Industrial Strategy (2022), UK High Court

Classification: Analogous authority on climate reporting and government accountability.

The High Court examined the adequacy of the United Kingdom's climate strategy under its statutory climate framework.

The judgment highlighted the importance of properly explaining how climate policies and emissions-reduction targets are expected to be achieved.

Relevance: Financial institutions can draw lessons concerning transparent climate strategies, measurable targets and accountable reporting.

6. LIABILITY AND REGULATORY CONSEQUENCES

Incorrect or misleading financed-emissions reporting may create several forms of legal exposure.

Regulatory liability: Failure to satisfy applicable sustainability disclosure obligations may result in supervisory intervention.

Civil liability: Misleading representations may give rise to contractual, tortious or other statutory claims where the relevant legal requirements are satisfied.

Corporate governance liability: Directors may face scrutiny where material climate risks are inadequately considered within their responsibilities.

Greenwashing liability: Financial institutions may face consequences for presenting investments or lending portfolios as environmentally sustainable without adequate supporting evidence.

Investor litigation: Shareholders and investors may challenge misleading disclosures or failures to communicate material financial risks.

Reputational liability: Inaccurate emissions reporting can undermine investor confidence and institutional credibility.

7. PRACTICAL COMPLIANCE REQUIREMENTS

Financial institutions should adopt the following measures:

Establish a documented financed-emissions accounting policy.

Apply consistent PCAF or another appropriate recognised methodology.

Maintain an inventory of financed-emissions categories.

Record portfolio boundaries and emissions attribution assumptions.

Distinguish verified emissions data from estimated information.

Establish independent internal verification procedures.

Maintain audit trails for emissions calculations.

Integrate climate-related risks into credit and investment decisions.

Establish measurable portfolio decarbonisation targets.

Review sustainability disclosures for greenwashing risks.

Provide board-level oversight of climate reporting.

Update reporting methodologies when recognised standards change.

8. CONCLUSION

Financed-emissions reporting is an increasingly important element of financial-sector accountability and sustainable investment regulation. In Switzerland, the relevant framework combines the Swiss Code of Obligations, the Climate Disclosures Ordinance, applicable FINMA supervisory requirements and internationally recognised accounting standards.

Although the cited judgments do not directly establish liability for financed-emissions reporting, they demonstrate the growing legal significance of climate governance, corporate accountability, investment oversight and transparent environmental disclosures.

Swiss financial institutions should therefore ensure that financed-emissions information is accurate, consistent, independently reviewable and supported by reliable underlying data. Effective reporting is essential not only for regulatory compliance but also for managing financial risks, preventing greenwashing and maintaining investor confidence.