Publication of FINMA supervisory notice on the Prevention and Combating of Greenwashing

FINMA has published a supervisory notice 05/2021 on the topic of preventing and combating greenwashing. The term “greenwashing” refers to the conscious or unconscious deception of investors or clients about the sustainable characteristics of financial products and services. Thus, financial products are misleadingly labelled as “sustainable”, “green” or “ESG” (Environment, Social, Governance) or the like.

The supervisory notice is aimed in particular at providers of collective investment schemes with a sustainability focus. The reason for this is that in 2020, for the first time, these exceeded the market volume of collective capital investments without sustainability reference.

FINMA’s focus in preventing and combating greenwashing is on the following two areas:

  • Sustainability-related information at fund level; and
  • appropriate organisation at the institution level in the management of such products.

Sustainability-related information at fund level
In this area, the focus is on protecting investors and customers. Investors for whom sustainability characteristics represent an essential criterion for the investment decision should be protected from investment decisions in products with a misleading designation. We consider the examples of greenwashing or potential greenwashing listed in the supervisory communication to be a good guide for practice. FINMA recommends a high degree of transparency in sustainability reporting: for example, it should be shown whether the sustainability objectives pursued have been achieved.

Organisation of institutions managing collective investment schemes with a sustainabilityfocus
In addition to the familiar criteria for an appropriate organisation under FINIG and CISA, FINMA pays attention to the following aspects for institutions managing collective investment schemes with a sustainability focus:

  • Investment decision-making process/investment controlling/risk management: Already in the investment decision-making process, attention must be paid to the sustainability-related criteria defined by the institution and their compliance. Subsequently, the criteria must be reviewed and monitored in investment controlling and risk management.
  • Expertise and knowledge: Both at the administrative level and at the operational level, the necessary expertise and knowledge in the area of sustainability are required. In our opinion, this also applies (albeit in a weakened form) to administrative and management bodies of institutions with collective investment schemes that do not relate to sustainability. The requirements and expectations for expertise and knowledge in the area of ESG are likely to increase further in the near future.
  • The sustainability strategy is to be prescribed by the body for overall management, control and supervision.
  • In the case of sustainability-related data, tools and ratings, attention must be paid to appropriate verification and monitoring of the data providers as well as validation of the information.

In terms of risk management, it is important that sustainability-related investments also cover the risks inherent in sustainability.

Further information and recommendations can be found in the Swiss Bankers Association’s Guidelines for the Inclusion of ESG Criteria in the Advisory Process for Private Clients.

At the legislative level, there are not yet any specific regulations to combat greenwashing. However, the Federal Council is currently considering corresponding amendments to financial market law(media release). It has instructed SIF to propose amendments to financial market law by autumn 2021 in order to prevent or combat greenwashing. This should be done in consideration of international developments (especially in the EU) so that Swiss financial products remain exportable. We assume that the SIF report should be available soon.

The complete Supervisory Notice 05/2021 can be found here.

If you have any questions on the subject, please feel free to contact Hans Kuhn or Sebastian Wälti.