On 16 December 2022, the Swiss Federal Council published its position paper on next steps to be expected regarding the prevention of greenwashing in the financial sector.

Greenwashing commonly refers to any practices of knowingly or unknowingly deceiving or misleading clients or investors about the sustainable characteristics of financial products and advisory processes. We are referring for further details to our SW newsletter of July 2022 on Regulatory Developments in Sustainable Finance.

The current Swiss regulatory framework does not yet have legislative or regulatory requirements on transparency or compliance with specific sustainability criteria aimed at preventing greenwashing risks for financial services or products apart from

• transparency requirements regarding sustainable fund products, as set out by FINMA in its Guidance 05/2021 of 3 November 2021;
• self-regulation on sustainability-related investment approaches published by the Asset Management Association; and
• the guidelines of June 2022 of the Swiss Banking Association for financial service providers on the integration of ESG-preferences and ESG-risks into investment advice and portfolio management.

Position of the Swiss Federal Council according to its position paper:
Financial services and products should only be advertised or labelled as having sustainable characteristics if they pursue at least one of the following investment objectives in addition to their financial goals:

1. alignment with one or more specific sustainability goals (e.g. investments into equity or debt issued by a company pursuing a sustainability goal), or

2. contribution to achieving one or more specific sustainability goals (e.g. impact investment with a product aiming at reducing the negative impact of selected target companies with a negative impact on the climate or biodiversity).

The product documentation or the financial service provider should specify whether the investment objective being pursued falls into the category of (1) or (2) or whether it is a combination of (1) and (2).

Financial services and products designed to only reduce ESG risks or optimize performance have only a financial investment objective and should not be labelled as sustainable.

As regards financial services providers offering a sustainable product or service, they should describe how they intend to achieve the sustainable investment goals. For a service provider pursuing an alignment goal, this would require a description how the alignment is achieved and measured in the investment process. To the extent that the approach is an impact investment goal contributing to the reduction of the negative impact of certain companies, the financial services provider should describe the management process aiming at this result (e.g. the selection process for target investments, the coordination with other investors and the process for achieving the intended result with the target companies), define KPIs for measuring the impact and monitor these criteria.

Furthermore, providers of sustainable financial services and products should regularly report on the selected sustainability goals. Compliance with transparency requirements should be verified by independent third parties and such transparency requirements should be binding on and enforceable against the providers of sustainable financial services and products.

Next Steps:
A working group led by the Swiss Federal Department of Finance has been tasked to examine how the positions of the Swiss Federal Council on preventing greenwashing in the financial sector may best be implemented in the Swiss laws and regulations. These proposals are scheduled to be available by 30 September 2023.