ESG/Sustainable Finance - avoiding greenwashing

Classification¹

Greenwashing is "unfair"

As part of the amendment to the CO2 Act, there has been a change to the Unfair Competition Act ("UCA") that has so far been little discussed in the media. From 1 January 2025, the law introduces a ban on making statements about [...] goods, works or services in relation to the climate impact caused that cannot be substantiated by objective and verifiable bases.    

In effect, this is a ban on greenwashing in relation to climate impact and a tightening of the status quo. Information must no longer just be "misleading" but must also be fact-based. Ultimately, it is now up to the institute to substantiate its statements in this regard. 

According to the view expressed here, not only confirmations in connection with (sustainability) reports but also statements on products and services can no longer be made without appropriate checks and documentation. This applies across all sectors and therefore naturally also includes financial products. 

The new provision will enter into force on 1 January 2025. 

Self-regulation by the SBA, AMAS and SIA

Initial situation

The self-regulations of the SBA^[4] and the AMAS^[5] have been amended. SIA has issued a corresponding regulation for unit-linked life insurance products for the first time. This was probably due in part to the Federal Council's announcement that it would issue binding regulations on greenwashing in the financial sector if the industry associations did not draw up corresponding proposals, but this has now been resolved for the time being with the endeavours of the three associations. As soon as the EU has published any amendments to the Sustainable Financial Reporting Directive ("SFDR") and in any case by 2027 at the latest, the Federal Council will evaluate whether further adjustments to self-regulation and/or additional regulations are deemed necessary. 

Content of self-regulation

The definition has been modelled on the EU Taxonomy Regulation^[6] . In future, investment products and services labelled as sustainable must pursue at least one of the following investment objectives in addition to the financial objectives:

• Compatibility with one or more specific sustainability goals
• Contribution to the achievement of one or more sustainability goals

The sustainability targets must be defined, e.g. by a government agency, but industry practice and own criteria are also possible. It must be determined how the sustainability targets can be measured or monitored. 

The AMAS and SBA self-regulation came into force on 1 September 2024 with transitional periods, while the SIA self-regulation will apply from 1 January 2025. 

Compliance with the self-regulation, and not just with the new developments, is now audited by external auditors^[7].  

Conclusion and outlook

The close coordination of the three associations in drafting the requirements sends a strong signal to market participants, that the regulation is intended to set a standard with corresponding legal certainty. However, the wording leaves a certain amount of room for manoeuvre when it comes to implementation. For example, compatibility with a sustainability objective might be less challenging to implement than the (active) contribution to achieving it. In both cases, however, the financial institution must deal with the sustainability goals, and particularly their measurement.

As before, the duty to comply with the self-regulation is limited to members of the associations and any financial institutions voluntarily subject to self-regulation. This means that the members of the SBA, AMAS and insurance companies voluntarily subject to SIA regulation and their tied insurance intermediaries are directly affected. However, the amended regulations will now create an "industry standard" which, in the view expressed here, even financial service providers that are not directly affected, such as portfolio managers, will not be able to escape in the long term. The practically simultaneous amendment of the UCA will do the rest to put greenwashing even more firmly in check in future. 

_{[1] This is a highly simplified presentation intended to enable a quick initial categorization of the topic. Each institution should determine the relevance and the specific need for action individually and specifically.
[2] If the bank in question is a member institution of the Swiss Bankers Association (SBA) or has voluntarily submitted to regulation.
[3] Provided the respective institution is a member of the Asset Management Association Switzerland (AMAS) or has voluntarily submitted to regulation.
[4] Guidelines for financial service providers on the integration of ESG preferences and ESG risks and the prevention of greenwashing in investment advice and asset management
[5] Self-regulation on transparency and disclosure for collective assets with a sustainability focus
[6] EU Regulation 2020/52 of 18 June 2020.
[7] The SBA's compliance with its self-regulation was already included in the internal audit catalog. This has been retained, i.e. inclusion in the audit catalog of the external audit takes place in parallel.}