The Background of ESG Greenwashing Regulation
In the middle of December, Switzerland released relevant documents on the financial industry to curb ESG fund greenwashing. Greenwashing is “the announcement that financial products have sustainable characteristics or pursue sustainable goals, but it does not actually reflect the current situation”. According to the document, greenwashing has the following risks:
- Investors and customers may be deceived by such publicity;
- Financial institutions issuing products face reputational and legal risks;
- Impact on the development of sustainable financial centers in Switzerland;
- Greenwashing is not in line with the global sustainable development goals;
In 2021, the Swiss Financial Supervisory Authority required that if the fund used the words “sustainable”, “green” or “ESG” in its publicity, it should disclose the sustainable goals at the same time. Subsequently, other regulators continued to take the following measures:
- In December 2021, the Swiss Asset Management Association and the Swiss Sustainable Finance Association divided the sustainable development goals of investors into three aspects: reducing financial risk, asset appreciation and impact investment;
- In June 2022, the Swiss Banking Association released a voluntary disclosure document, proposing that financial institutions include investors’ ESG preferences in the investment volume and improve the quality of financial services;
- In September 2022, the Swiss Asset Management Association issued a voluntary regulatory document, proposing to eliminate relevant risks in ESG investment and designate a specific investment exclusion list;
Contents of Regulatory Document
This regulatory document is the first time that the regulatory authority has formulated the ESG fund greenwashing issue. It believes that if the fund pursues sustainability, it needs to disclose relevant specific plans to the market. At the same time, the document will be in line with the 2023 United Nations sustainable development goal, and strengthen the position of Switzerland’s sustainable financial center. Specifically, financial products can use sustainable labels only if they meet at least one condition:
- Alignment with one or more specific sustainability goals；
- Contribution to achieving one or more specific sustainability goals；
The document requires that the name “ESG” cannot be used if the fund only seeks to maximize returns. The definition of sustainable investment should also conform to United Nations standards, such as stock and bond investment in listed companies committed to the development goal of 1.5 degrees Celsius. In addition, impact investment is also consistent with sustainable investment.
In addition, in terms of sustainable disclosure, the document requires information to be public, transparent, and comparable. Financial institutions need to provide sustainable management processes and publish specific measurement indicators. In addition, financial products need to be evaluated by a third party to improve their credibility.