Preventing and combating greenwashing

Demand for sustainable financial products and services from clients and investors remains high. There is the risk that clients and investors will be misled, either knowingly or unknowingly, about the sustainable characteristics of financial products and services (“greenwashing”). Investigations by FINMA show that providers often make vague or even misleading promises about the sustainability of their products and services.

The statutory provisions in Switzerland contain in particular a ban on deception with regard to collective investment schemes. Investors should also be able to make informed investment decisions about products marketed as sustainable. In the case of Swiss funds, for example, FINMA clarified the information that must be included in the documentation if funds are described as sustainable. In applications for product approvals, fund managers are asked for additional information on the sustainability targets pursued, their implementation and their intended impact, if any. This enables FINMA to better assess whether there is deception and to intervene accordingly. In the interests of good practice, FINMA recommends transparent and regular reporting in this context. FINMA also ensures that institutions that manage sustainability-related collective investment schemes are suitably organised. In particular, this means that sustainability-related criteria are included in the investment decision-making process, that relevant expertise is available and that risk management also covers sustainability risks. Furthermore, FINMA highlights to financial service providers who offer sustainability-related financial products that the advisory process (at the point of sale) involves greenwashing risks. These risks should be limited by financial service providers, particularly in view of their potential civil liability.

Overall, however, FINMA’s discretionary powers to efficiently prevent and combat greenwashing are limited. Particularly, there is a lack of specific sustainability-related transparency obligations and effective supervisory bases for taking action at the point of sale. Accordingly, besides transparency requirements for funds, FINMA focuses on compliance with general requirements in the areas of governance, risk management and the internal control system. Regulatory specifications could give FINMA additional tools to address greenwashing more effectively.