Switzerland’s Federal Council is planning to implement new sustainable fund rules for asset managers labelling their products as “sustainable”, “green” or “ESG” in a bid to tackle greenwashing.
The new proposal, first published in December, would require asset managers to disclose how they meet their sustainable objectives in order to offer investors a clearer picture of the investment landscape and avoiding deceptive marketing practices.
The Swiss regulatory framework currently does not have any legislative or regulatory requirements on transparency or compliance with specific sustainability criteria aimed at preventing greenwashing risks for financial services.
With the new proposal, Switzerland’s council is the latest of many regulators globally looking to tackle the issue of greenwashing, especially around the naming of funds, which has been described as a “powerful marketing tool” for asset managers.
During October last year, The UK Financial Conduct Authority (FCA) proposed new rules to clamp down on the practice, targeting investment product sustainability labels and introducing restrictions on how terms like ‘ESG’, ‘green’ or ‘sustainable’ can be used.
A month later, the European Securities and Markets Authority (ESMA) announced new rules for the naming of ESG-related funds to “address any misuse” of the Sustainable Finance Disclosure Regulation (SFDR).
As part of the new proposals, financial products that have been labelled as “sustainable” must align with one or more specific sustainability objectives. For example, equities and bonds for companies that are pursuing a sustainability goal, such as the Paris Agreement climate targets or the UN’s Sustainable Development Goals (SDGs).
Alternatively, funds must contribute to achieving specific sustainability goals. An example includes “impact investing”, defined as investment into a product which reduces the negative impact of a selected target company on the climate, such as the installation of a solar farm.
As we enter 2023, the market investment market is calling for clearer rules and guidelines. A recent study by CoreData revealed that even those working within the sector are confused when it comes to existing regulations and are afraid of greenwashing.
“Financial advisers are battling against a hazardous set of headwinds including inflation, interest rate rises and a cost of living crisis which has sent UK investors running for cover,” said Andrew Inwood, founder and principal of CoreData. “But as advisers swim against these currents, they also need to contend with a wave of ESG regulations. So it is little wonder that some are feeling confused and calling for additional training. This situation provides an opportunity for asset managers and providers to bridge the ESG knowledge gap through the provision of educational and training materials for advisers.”
The Swiss regulator also recommended the sustainable goals should be defined “using the widest possible reference framework” such as the United Nation’s Sustainable Development Goals (SDG).
A working group has been tasked to examine how the proposal may best be implemented in the Swiss laws and regulations. These proposals are scheduled to be available by 30 September 2023.
