31 October 2023

ESG and greenwashing in the Swiss financial sector?

  • Articles
  • Legal
  • Banking / Insurance
  • Governance / ESG

The Federal Department of Finance plans government regulation to prevent greenwashing.

Interest in sustainable finance has increased tremendously, driven by international initiatives to combat climate change and promote sustainable development.

However, the significant international capital flows toward environmental, social and governance (ESG) investments also poses the risk that financial institutions will call products sustainable that are not.

So-called greenwashing is the attempt by organizations to give themselves a "green" or "sustainable" image, particularly through measures in the area of communication and marketing, without actually systematically implementing corresponding, sustainability-oriented activities in their operational business.

Greenwashing is in particular a major issue in the financial sector. Financial products are offered as "green" or "sustainable" without specifying or applying clear criteria. In this context, the claim that financial products are "climate-neutral" is also becoming increasingly widespread.

The Federal Department of Finance (FDF) has therefore recently announced that it will draft a bill to implement the Federal Council's position on preventing greenwashing. This step was communicated to the Federal Council at its meeting on October 25, 2023 and marks an important milestone in Switzerland's efforts to combat the deception of clients in the financial sector with regard to sustainable characteristics of financial products and services.

The Federal Council had already published its position on greenwashing prevention in the financial sector in December 2022. This step reflected Switzerland's commitment to strengthening transparency and integrity in the financial sector. At the same time, the Federal Council instructed the Federal Department of Finance to work closely with various federal offices, the Swiss Financial Market Supervisory Authority (FINMA), the financial industry and non-governmental organizations to examine how the defined objectives can be implemented efficiently.

After evaluating the contributions of the working group members, the FDF has decided to draw up a template for government regulation at ordinance level. These regulatory measures should be based on principles and protect consumers from greenwashing. In addition, such regulations can be supplemented by self-regulations of the financial industry, if necessary.

The drafted bill will be submitted to the Federal Council for consultation by the end of August 2024 at the latest. These measures illustrate the Swiss government's commitment to strengthening the integrity of the financial sector and ensuring that financial products and services are advertised transparently and honestly in terms of their sustainability attributes.

However, it is important to note that should the financial industry be able to present effective self-regulation that successfully implements the Federal Council's position, the Federal Department of Finance will refrain from further government regulatory measures. The financial industry is now under time pressure to present a solution (self-regulation).

These developments are of great importance, as they will not only strengthen the credibility of the financial sector, but also promote consumer confidence in sustainable financial investments.

Switzerland is thus sending a signal in the direction of a more responsible and transparent financial world.

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