Swiss Companies Are Under-Reporting the Climate Transition Risk That Hits Their Balance Sheets

TLDR: Most first-cycle filers have quietly collapsed double materiality into a single checklist, systematically understating the climate transition risk that threatens their balance sheets, just as auditors and investors begin scrutinising how the assessment was actually built.

A Two-Axis Test Collapsed Into One Column

The Corporate Sustainability Reporting Directive (CSRD), Directive (EU) 2022/2464, mandates what the European Sustainability Reporting Standards (ESRS) call a double materiality assessment (DMA): a two-dimensional analysis operating simultaneously on distinct axes. The first axis, impact materiality, asks which company activities produce significant effects on the environment or society, the inside-out perspective. The second, financial materiality, asks which sustainability factors generate risks or opportunities affecting the company’s cash flows, financial position, or access to capital, the outside-in perspective. The European Financial Reporting Advisory Group (EFRAG), the EU’s technical adviser on these standards, addresses the relationship in its Implementation Guidance IG 1 on materiality assessment, finalised in May 2024: it establishes that these two concepts "interplay" while remaining analytically distinct, so a topic can be material on one axis while immaterial on the other.

First-cycle reporters have largely collapsed this structure into a single exercise. Internal ESG teams score sustainability topics on a combined matrix, apply a shared materiality threshold, and present the result as compliant with ESRS 2 Disclosure Requirement IRO-1, the standard governing how a company’s impacts, risks and opportunities (IROs) are assessed and disclosed. The effect is a category error with direct consequences for disclosure quality. When the two assessments merge, the outside-in financial axis, the home of carbon price exposure, stranded-asset risk, and transition-driven supply chain costs, absorbs the inside-out impact logic. Companies produce accurate impact maps and underweighted financial risk registers.

The Mezyan thesis at the centre of this analysis is precise: the DMA is the moment where ESG data gets translated into the financial language of the board and CFO. Firms that treat the two axes as one exercise are making a structural misconfiguration that creates blind spots directly in the path of carbon pricing, supply chain disruption costs, and stranded-asset exposure. The enforcement focus of the European Securities and Markets Authority (ESMA) now elevates this to a financial reporting governance issue held jointly by the board, CFO, and risk committee.

What ESMA’s First-Wave Enforcement Scan Reveals

In October 2025, ESMA published its "Materiality matters (!)" fact-finding exercise on FY2024 sustainability statements, reviewing 91 European issuers across 23 EU member states, the first systematic enforcement-adjacent scan of DMA quality. The results are specific.

Fewer than two-thirds of the sample, 61.7 percent precisely, met the overall objective of Disclosure Requirement IRO-1 of ESRS 2, which requires transparent disclosure of how the DMA was conducted. Among the most significant structural findings: 22 percent of issuers provided no separate description of the processes for assessing impact materiality and financial materiality as distinct analytical exercises. ESMA’s report identifies this directly: a consolidated description that treats risks and opportunities as derivative of impacts misses the analytical separation the standard requires, particularly for transition-related financial risks where companies must demonstrate how external climate scenarios translate into internal financial thresholds.

The gap widens for topics assessed as immaterial. For sustainability matters excluded from the materiality threshold, including many transition-risk sub-topics, fewer than half the sample, 54.3 percent, provided sufficient disclosure justifying that exclusion. This is the emerging audit exposure: absent justification for immaterial topics signals that the assessment functioned as a shortlisting exercise rather than a structured analytical process. ESMA’s 2025 European Common Enforcement Priorities (ECEP) Statement, published alongside the fact-finding, designates DMA quality a primary supervisory focus for the 2025 annual reporting cycle.

Additional structural findings: fewer than 45 percent of issuers positioned topical IRO-1 disclosures in the correct general information section of their sustainability statement; and 28.6 percent of the sample lacked targets, and provided no statement explaining their absence, for at least one material sustainability matter.

The Transition Risk Blind Spot Inside the E1 Data

One data point within the ESMA review acts as a leading indicator of systemic misconfiguration. All 91 companies in the sample found climate change (ESRS E1) material at the topic level, 100 percent. Yet only 73.6 percent identified climate change adaptation as a material sub-topic, only 86.8 percent identified climate change mitigation, and 78 percent identified energy as material. These are the three E1 sub-topics most directly linked to quantifiable financial exposure from transition scenarios.

The interpretation is that companies treat climate as a known, bounded environmental matter rather than a dynamic financial variable. The carbon price risk embedded in transition scenarios, including assets subject to EU Emissions Trading System (EU ETS) pricing, supply chains exposed to the carbon border adjustment mechanism (CBAM), and production processes facing mandatory efficiency benchmarks, requires a financial materiality analysis that moves from scenario-based quantification to threshold-crossing tests and feeds back into impairment reviews and financial disclosures. ESMA found that for 27.5 percent of the sample it remained unclear whether the materiality assessment had considered gross impacts prior to mitigation measures. When mitigation measures are incorporated into the starting point of the assessment, transition risk is scored on a managed-state basis rather than the gross-exposure basis the standard requires.

For companies with significant EU manufacturing, cement, chemicals, or logistics operations, the financial materiality assessment of transition scenarios operates as a balance-sheet question that belongs in the same analytical universe as impairment testing and going-concern disclosures. The revised Swiss CO2 Act, which aligned the Swiss Emissions Trading System with the EU ETS from 1 January 2025, means carbon price exposure is already live for Swiss industrial operators, regardless of whether the DMA reflects it.

Swiss Companies Face a Compressed Reporting Timeline

Swiss companies enter this regulatory environment along two parallel tracks. The first is the EU CSRD: Swiss parent companies with more than EUR 450 million in consolidated EU net turnover and at least one EU subsidiary or branch exceeding EUR 200 million in turnover fall under CSRD group-level reporting obligations, with FY2027 sustainability statements due in 2028. Omnibus I, Directive (EU) 2026/47, which entered into force on 18 March 2026, maintained the non-EU undertaking threshold intact while raising the domestic EU company threshold to 1,000 employees and EUR 450 million turnover.

The second track is domestic. On 1 April 2026, the Swiss Federal Council published the preliminary draft of the Federal Act on Sustainable Corporate Governance (Bundesgesetz über die nachhaltige Unternehmensführung, NUFG), with the consultation period closing on 9 July 2026. The proposed threshold, more than 1,000 full-time employees globally and more than CHF 450 million in turnover, aligns closely with the revised CSRD scope. LALIVE’s analysis of the NUFG proposal confirms implementation is expected from FY2028 for Swiss-domiciled companies.

The practical consequence: Swiss companies in the shadow of both tracks face a structural DMA build that must be completed, stress-tested, and assurance-ready within 12 to 24 months. For companies in carbon-intensive sectors, the financial materiality assessment of transition risk scenarios is the highest-stakes component of that build.

What Auditors Are Now Checking

The CSRD mandates limited assurance on sustainability statements from the first reporting year, with the European Commission required to adopt a dedicated limited assurance standard by 1 October 2026. ESMA’s fact-finding found that two companies within the 91-strong first-wave sample received qualified limited assurance opinions on their FY2024 sustainability statements, with at least one qualification related directly to materiality assessment quality. A further four issuers received emphasis-of-matter paragraphs from assurance providers, several referencing materiality assessment deficiencies.

Assurance practitioners are applying scrutiny to three specific aspects of the DMA that first-cycle reporters consistently underdeveloped: the completeness of process disclosure for topics assessed as immaterial; the quantitative or qualitative thresholds applied for financial materiality determinations; and the consistency between impact, risk, and opportunity (IRO) descriptions, the targets disclosed, and the topical disclosures that follow. A DMA built as a questionnaire produces boilerplate IRO descriptions that fail cross-referencing: where the financial materiality assessment states that carbon price represents a medium-term financial risk, the assurance provider will expect a corresponding quantified target or a documented statement explaining its absence. The absence of that logical chain creates, at minimum, an emphasis-of-matter trigger.

The Strategic Recalibration: DMA as Risk Intelligence

Companies that exit the 2027 assurance cycle with clean opinions and credible investor communications will be the ones that redesigned the DMA as a risk intelligence process rather than a compliance form. This means separating the financial materiality assessment from the impact assessment at the organisational level: the financial axis requires scenario-based analysis connected to the CFO, treasury, and risk committee, alongside and independent of the sustainability team. It means setting explicit, auditable financial thresholds, expressed as a percentage of revenue, EBITDA, or asset value, against which each transition risk scenario is tested. And it means building a documentation trail that demonstrates the specific evidence, assumptions, and stakeholder inputs behind each materiality conclusion.

Holcim’s publicly filed Double Materiality Assessment Report for FY2024 illustrates one approach: a structured methodology integrating climate transition risk scenarios into the financial materiality axis with explicit time horizons, short, medium, and long term to 2050, aligned with the company’s enterprise risk management process. Nestlé’s FY2024 Non-Financial Statement identifies 39 material sustainability impacts, risks, and opportunities under CSRD-aligned disclosure, demonstrating comparable integration of supply chain climate exposure into the outside-in financial materiality assessment.

The common thread across well-constructed first-cycle DMA implementations is structural clarity between the two axes, each backed by auditable evidence and connected to the company’s financial risk register. Swiss companies approaching their first CSRD or NUFG-aligned assessment carry a structural advantage: the ability to build that separation from the outset, rather than retrofitting it onto an impact-led questionnaire already entering assurance review. Mezyan advises corporate ESG and finance teams on building the dual-axis double materiality methodology, constructing the scenario-to-threshold connection for transition risk, and preparing the documentation architecture that satisfies the 2027 assurance standard and the investor-grade disclosure expectations that follow it.

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References

1. EFRAG, "Finalization of Three EFRAG ESRS IG Documents (EFRAG IG 1 to 3)," 31 May 2024. https://www.efrag.org/en/news-and-calendar/news/finalization-of-three-efrag-esrs-ig-documents-efrag-ig-1-to-3
2. ESMA, "Materiality matters (!): Results of a fact-finding exercise on 2024 corporate reporting practices under ESRS Set 1," 14 October 2025. https://www.esma.europa.eu/sites/default/files/2025-10/ESMA32-846262651-5288_Fact_finding_on_materiality_disclosures_in_sustainability_statements.pdf
3. ESMA, "ESMA announces 2025 European Common Enforcement Priorities," 14 October 2025. https://www.esma.europa.eu/press-news/esma-news/esma-announces-2025-european-common-enforcement-priorities-and-results-fact
4. European Commission, Directive (EU) 2022/2464 (CSRD). https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32022L2464
5. European Commission, Commission Delegated Regulation (EU) 2023/2772 (ESRS Set 1). https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ:L_202302772
6. Directive (EU) 2026/47 (Omnibus I). BDO Switzerland: https://www.bdo.ch/en-gb/insights/omnibus-i-who-will-be-affected-by-sustainability-reporting
7. Swiss Federal Council, preliminary draft of the Federal Act on Sustainable Corporate Governance (NUFG), 1 April 2026. LALIVE: https://www.lalive.law/the-swiss-corporate-sustainability-act-federal-council-proposes-milestone-swiss-sustainability-legislation/
8. Holcim Ltd, "Double Materiality Assessment 2024 Report," 28 February 2025. https://www.holcim.com/sites/holcim/files/docs/28022025-holcim-double-materiality-assessment-2024.pdf
9. Nestlé S.A., "Non-Financial Statement 2024," February 2025. https://www.nestle.com/sites/default/files/2025-02/non-financial-statement-2024.pdf
10. International Carbon Action Partnership (ICAP), "Switzerland Emissions Trading System." https://icapcarbonaction.com/en/ets/switzerland-emissions-trading-system