Switzerland embraces self-regulation over greenwashing in finance

Switzerland’s Federal Council has made the decision to hold off on imposing regulatory measures on greenwashing within the financial sector.

According to ESG Today, instead, the sector will be permitted to monitor itself, following significant progress by industry associations in crafting and enforcing self-regulatory standards.

This move is a response to the groundwork laid out in a December 2022 policy paper by the Swiss Federal Council, which detailed various measures aimed at curtailing the misrepresentation of financial products as environmentally sustainable when they are not.

Particularly noteworthy in these measures is the requirement for sustainability-labelled financial products to pursue specific investment objectives that support sustainability goals. Additionally, these products must clearly document these characteristics. The Council had also proposed transparency mandates, including a detailed description of the sustainability strategies employed by financial service providers, their implementation, and regular reports on sustainability targets verified by independent third parties.

In October 2023, the Swiss Federal Department of Finance (FDF) suggested it might introduce regulations to enforce these proposals. However, it later deferred these plans in light of a promising self-regulatory proposal from the finance sector. The Asset Management Association Switzerland (AMAS), the Swiss Bankers Association (SBA), and the Swiss Insurance Association (SIA) have all committed to developing necessary self-regulation, believing it to be a more effective and flexible approach than traditional regulation.

The Council’s recent announcement acknowledges the adoption of new self-regulatory measures by these associations, which include definitions of sustainable investment objectives and the auditing of these practices by independent entities. However, the Council also pointed out some ongoing concerns, such as the alignment of these measures with EU law and the enforceability of the sustainability frameworks being used.

The decision to defer governmental regulation underscores a pivotal development in Swiss financial policy, emphasizing a preference for industry-led solutions over governmental intervention. The Council has stated it will revisit the need for formal regulations once the EU updates its Sustainable Finance Disclosure Regulation (SFDR).

Asset Management Association Switzerland CEO Adrian Schatzmann commented on the update, stating, “With the present AMAS self-regulation on sustainability, a quality step has been taken in key areas that benefits all stakeholders: investors, the Swiss asset management industry, and the Swiss financial centre as a whole. The preceding process is an excellent example of constructive and targeted dialogue between the federal government and the private sector.”

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