Financial products and funds labelled as ‘sustainable,’ green,’ or ‘ESG’ on Swiss financial markets will be required to align or contribute to specific sustainability goals, with providers required to disclose how they intend to achieve the goals, according to new proposed rules unveiled by the Swiss Federal Council.
The Council stated that the proposals form part of efforts to prevent greenwashing, or the mischaracterization or exaggeration of the sustainability characteristics and attributes of financial products and services.
The initiative comes as regulators globally, including the UK’s FCA, the US’ SEC and the EU’s ESMA are moving to address issues associated with the proliferation of investment products and services marketed as ’ESG,’ ‘green’ or ‘sustainable,’ without clear rules communicating to investors the actual ESG-related attributes, methodologies and criteria that are being considered in the funds.
According to a position paper release by the Federal Council, financial products that feature a sustainability label will be required pursue at least one investment objective, in addition to their financial goals, to align with one or more specific sustainability goals, or to contribute to the achievement of specific sustainability goals.
Under this definition, products that are aimed at reducing ESG risk, without pursuing a specific sustainability goal, will not qualify for a sustainable label.
Additional proposals include disclosures regarding the products sustainability approach, regular reporting on the sustainability goals, independent third-party verification to ensure the credibility of the sustainability goals, and recourse to legal action in the event of non-compliance.
The council announced that a working group under the Federal Department of Finance has been formed to implement the greenwashing rules, with a full plan to be presented by the end of September 2023.
The position paper was released alongside a Federal Council report outlining a series of measures planned through 2025 aimed at supporting the council’s goal to consolidate the Swiss financial center’s “position as a leading location for sustainable finance.” Measures planned over the next few years cover a wide range of initiatives ranging from making TCFD recommendations mandatory for large companies and requiring transparency on stewardship strategies to promoting sustainability in education, issuing Confederation green bonds and supporting global carbon pricing initiatives.