Swiss government will allow financial institutions to self-regulate greenwashing

July 4, 2024|Written by |Swiss National Bank

Switzerland’s financial institutions can self-regulate on greenwashing policies, the government said, in a move that was welcomed by industry leaders but lambasted by climate advocates.

The Federal Council said in mid-June it was satisfied with the industry’s self-regulatory provisions as they took into account many of the government’s positions, such as implementing requirements for the definition of sustainable investment objectives and requiring an audit by an independent third party.

However, the Swiss government noted that “unresolved issues remain”, including compliance with EU law and the permissible reference framework for sustainability targets and enforceability.

While the self-regulation provisions will come into force in 2027, the Federal Council noted that it will re-evaluate its decision once the EU finishes amending the Sustainable Finance Disclosure Regulation (SFDR). While Switzerland is not part of the EU, it is part of the single market which means most EU laws apply to the confederation.

The announcement creates a lull in a debate dating back from 2022 when the government proposed rules on greenwashing and misleading practices but the finance industry pushed back, arguing that they should be allowed to self-regulate.

Asti Roesle, a senior project manager at Klima-Allianz Schweiz, said the Swiss government had given in to the financial sector and the decision was “utterly disappointing and shows once again how the powerful financial lobby maintains its grip on the Swiss government and politics”.

The three main industry leaders in Switzerland – the Asset Management Association, the Swiss Bankers Association, and the Swiss Insurance Association – welcomed the Federal Council’s decision, saying in a joint statement that they “consider self-regulation to be the most suitable instrument for avoiding greenwashing”.

However, Stephan Kellenberger, deputy head of sustainable finance at WWF Switzerland, questioned the gap between the government’s position and the association groups, as “the Federal Council makes it clear that it takes note of the [self] regulations. It does not endorse them, and it clearly says there are some unresolved issues”.

He said the self-assessed regulations would not change the status quo and will eventually lead to more greenwashing. He noted there could be a role for self regulation in combination with regulatory oversight but “it cannot fill the voids of absent state regulation”.

Uuriintuya Batsaikhan, head of research at Positive Money, said self-regulation generally has very limited effects. As the world transitions to a greener economy, there are going to be more side effects, including greenwashing.

“Strong regulations need to go hand in hand [with the green transition],” she said. “You cannot have a stable table with no legs.”

She added that there is intended greenwashing but also a lot of unintended greenwashing in financial markets. Strong regulation helps distinguish between the two but “self regulation will mean that the lines between this will further blur”.

This page was last updated July 8, 2024

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