The Swiss Federal Department of Finance (FDF) announced on October 25, 2023, that it will continue to work on regulatory plans addressing greenwashing in the financial sector, including investment and disclosure rules for financial products using labels like “sustainable,” “green,” or “ESG.”
This announcement from the FDF followed the publication of a document summarizing the Swiss Federal Council’s stance on preventing greenwashing or misleadingly portraying a financial product as having sustainable features by the Swiss Federal Council in December 2022.
Among the measures outlined in the Swiss Federal Council’s position on preventing greenwashing are requirements for financial products labeled as sustainable to follow at least one investment objective in addition to their financial goals and to specify which of these features or feature combinations are applied for sustainability goals and product documentation. It was also mandatory for such products to be consistent with one or more specific sustainability objectives or contribute to achieving certain sustainability goals.
In this context, it is essential to clearly define what “compliance” and “contribution” mean and which economic activities can be considered “sustainable.” The Swiss Federal Council has stated that products aiming to reduce risks related to ESG and Sustainability issues without following a specific sustainability goal will not qualify as sustainable.
The Swiss Federal Council’s proposals also include mandatory disclosure of sustainability approaches and how the approach is obtained and measured by financial service providers offering sustainable investment products, as well as transparency rules, including regular reporting and third-party verification of defined sustainability objectives.
At the time, the Swiss Federal Council instructed the FDF to evaluate how the proposals could be implemented in consultation with representatives from other government agencies, regulators, the industry, and non-governmental organizations. Greenwashing is considered a significant problem in financial markets, and it would be beneficial for Swiss financial market regulators to consider developing a Swiss Green Taxonomy to prevent greenwashing and ensure compatibility with the EU.
Given the integration of Swiss financial markets with the European Union, Switzerland should consider developing a Swiss Green Taxonomy to align with the EU Green Taxonomy, encouraging the flow of green financing and reducing transaction costs in both jurisdictions.
With the October 25 announcement, the FDF also stated that it would apply the Swiss Federal Council’s stance by proposing regulation based on principles, potentially allowing the industry to self-regulate. However, the FDF noted that it would refrain from further regulatory efforts if the financial sector provided a self-regulatory solution in line with the Swiss Federal Council’s stance.
The FDF has committed to presenting a consultation draft for the proposed regulation by August 2024.