Switzerland’s Federal Council announced today that it will hold off on regulating greenwashing in the financial sector, allowing instead for the industry to monitor itself, following progress made by the sector’s associations in developing and implementing self-regulatory provisions.

The decision follows the release in December 2022 of a paper by the Swiss Federal Council outlining its position on the prevention of greenwashing, or the risk of having a financial product falsely or misleadingly portrayed as having sustainable characteristics. Measures outlined in the Council’s greenwashing prevention position included requiring financial products that feature a sustainability label to pursue at least one investment objective, in addition to their financial goals, to align with one or more specific sustainability goals, or to contribute to the achievement of specific sustainability goals, and for product documentation to specify which of these characteristics, or combination of characteristics applied.

The Council’s proposals also included transparency rules, including requiring financial service providers offering sustainable investment products to describe their sustainability approach, and how the approach is achieved and measured, as well as regular reporting on the defined sustainability goals, along with verification by an independent third party.

In October 2023, the Swiss Federal Department of Finance (FDF) announced plans to introduce regulations this year to implement its position on greenwashing, but added that it will hold off on its regulatory efforts if the financial industry presents a self-regulation solution that meets the Council’s position.

Following the FDF’s October announcement, the Asset Management Association Switzerland (AMAS), the Swiss Bankers Association (SBA) and the Swiss Insurance Association (SIA) released a statement indicating that they would develop the required self-regulation, stating that they “remain convinced that self-regulation is an effective and, compared to principle-based regulation, more flexible instrument to avoid greenwashing.”

In its update today, the Council said that it has “taken note” of the new self-regulatory provisions adopted by the finance associations, noting:

“In particular, they implement requirements for the definition of sustainable investment objectives, the description of the sustainability approaches applied, accountability in this regard and the audit of implementation by an independent third party.”

The Council did highlight some remaining “unresolved issues,” however, including compliance within the provisions by applying EU law, and regarding permissible reference framework for sustainability targets and enforceability.

Based on the progress, the Council stated that “is refraining from introducing state regulation to combat greenwashing in the financial sector at this time,” while instructing the FDF to re-evaluate once the EU publishes potential amendments to its Sustainable Finance Disclosure Regulation (SFDR).

In a joint statement released following the Council’s announcement, finance associations AMAS, SBA and SIA welcomed the decision, reiterating their position that considers “self-regulation to be the most suitable instrument for avoiding greenwashing.”

Adrian Schatzmann, CEO of the AMAS, said:

“With the present AMAS self-regulation on sustainability, a quality step has been taken in key areas that benefits all stakeholders: investors, the Swiss asset management industry and the Swiss financial centre as a whole. The preceding process is an excellent example of constructive and targeted dialogue between the federal government and the private sector.”