The integrity of financial services and products is of vital importance to the Swiss financial centre. Customers rightly expect high standards of quality from Swiss-based financial service providers, and this of course also applies to financial products marketed as sustainable. The Swiss Bankers Association (SBA) is therefore opposed to all forms of greenwashing and takes steps of its own to preserve the Swiss financial centre’s credibility.
Greenwashing in the value chain
There are three areas of a bank’s operations in which potential greenwashing must be addressed :
- When a financial service provider positions itself as sustainable both internally and externally (e.g. on social media or in its advertising, statements of support or sustainability reports), but its internal business practices contradict the image it communicates.
- When false or misleading claims are made about a product’s sustainability credentials or its composition. Financial market law already sanctions false or misleading conduct. For example, the Financial Services Act contains provisions on liability (Art. 69 FinSA) and criminal provisions (Art. 90 FinSA) in relation to prospectuses and key information documents.
- When bank officers fail to ensure that environmental, social and governance (ESG) criteria are incorporated into their advisory processes and that customers’ expectations are met. Ways to counter this include regularly asking customers about their preferences and providing in-house training for staff.
Types of greenwashing
There are various types of greenwashing which can arise in those areas of the value chain:
- The first is scientific. The science underlying sustainable finance is still in its infancy: it is heterogenous and far from settled. In particular, there is no consensus as to how the impact of financial products on ESG criteria should be measured, so it is still not easy to prove just how “sustainable” a given product is in terms of its impact. As a result, there is no universally accepted definition of what constitutes a “sustainable investment”, nor are the criteria an investment must meet in order to be labelled “sustainable” (referred to collectively as a taxonomy) precisely defined. This poses a challenge for all investors, who must decide which criteria and practices are most important for their needs.
- The second relates to regulation. When selling and providing advice on financial products, key information such as risk, performance and liquidity must be taken into account. At the same time, investor protection and the product’s suitability for the customer must be assured. This can severely restrict small investors’ scope to achieve their sustainability goals. In practical terms, therefore, the investment universe available to this customer segment must incorporate sustainability characteristics but also be broadly based at all times.
- The third is “perceived greenwashing”, where the actual characteristics of an investment fail to live up to customer expectations, for example due to misleading marketing claims or poor quality of advice.
These three areas can be addressed by embedding sustainability into corporate strategy, focusing on clear and truthful product information, implementing the corresponding advisory processes, and staff training. They also provide a sound basis for developing specific measures to prevent greenwashing, which is essential – not least for the financial industry’s reputation. The overwhelming majority of providers take the challenge of sustainability seriously and want to make a positive contribution.
SBA activities and measures
Creating credibility means providing transparent information and professional advice. The advisory process is one area where the SBA sees the greatest potential for eradicating greenwashing. By issuing two sets of self-regulations that are binding on all members and came into force on 1 January 2023, the SBA is making sustainability an integral part of advisory sessions with customers. The new guidelines set out, for the first time, binding rules on integrating ESG criteria into investment advice and portfolio management, and for addressing energy efficiency when giving mortgage advice. By offering systematic training and professional development to staff, as well as providing professional advice and transparent communication about products and services, SBA member institutions can make an important contribution to avoiding greenwashing.
Creating credibility means honouring your own commitments just as you expect others to. The SBA regards net-zero initiatives as an effective instrument for achieving the climate goal set for the year 2050. Consequently, it has itself been a supporting institution of the Net-Zero Banking Alliance since April 2022. It therefore recommends its members sign up to international net-zero alliances and sustainability initiatives in the banking sector, such as PRI and PRB. By joining net-zero alliances, financial service providers undertake to set themselves targets, disclose their plans transparently, and report regularly on their progress. Sustainability initiatives can help to achieve the scientific consensus necessary to preventing greenwashing.
Furthermore, we are working with other associations on ways to achieve transparent disclosure. This is the only way to make sure that investors receive the information they need. That in turn enables truthfulness and clarity in product information, and addresses the expectations of customers.
Our partners’ activities and measures
The Swiss Climate Scores, which were developed under the auspices of the federal government and with the collaboration of experts from the sector and NGOs, create greater transparency regarding the Paris alignment of financial investments. The SBA joins the Asset Management Association Switzerland (AMAS) and Swiss Sustainable Finance (SSF) in welcoming these six indicators, which are based on existing, internationally established criteria and methods. At present, the lack of data in certain areas together with the need for further detailed clarification mean that the Scores are not yet applicable to all forms of investment, but valuable experience is being gathered in the market during the current pilot phase. In October 2022, AMAS and SSF compiled aids to implementing the Scores.
Complementing the SBA’s self-regulation on sustainability in customer advice (see above), AMAS has defined a self-regulation on transparency and disclosure for sustainability-related collective assets, which will come into force for all AMAS members at the end of September 2023. This lays down, for the first time, binding rules regarding the organisation of financial institutions that create and manage sustainability-related collective assets, and the information requirement for sustainability-related products.
The SBA’s stance
Overview of different forms of sustainable investment
|Best-in-class||This approach involves comparing the ESG performance of a company or issuer with that of its competitors using a sustainability rating. All companies or issuers with a rating above a defined threshold are deemed suitable for investment.|
|This term describes activities performed by shareholders (or their representatives) with the goal of convincing companies to take account of ESG criteria so as to improve their ESG performance and reduce their risks.|
|In this approach, ESG risks and opportunities are expressly integrated into traditional financial analysis and investment decisions based on a systematic process and appropriate research sources.|
|Exercising voting rights on ESG issues||This refers to investors addressing concerns over ESG issues by actively exercising their voting rights based on ESG principles or an ESG policy.|
|Exclusions||In this approach, companies, countries or other issuers are excluded on the grounds of activities that are not considered suitable for investment. Exclusion criteria (based on norms and values) can refer to categories of financial instruments or products (e.g. weapons or tobacco), activities (e.g. animal testing), or business practices (e.g. severe violations of human rights or corruption).|
|Impact investments are investments in companies, organisations, projects and funds that aim to generate a measurable, beneficial environmental and/or social impact alongside a financial return. They can be made in both emerging and developed markets and target a range of returns from below-market to market rates, depending upon the circumstances. In general, impact investments have three main characteristics: the intention to create an impact, management of that impact, and measurability of the impact.|
|Norms-based screening||In this approach, investments are screened against minimum standards of business practice based on national or international standards and norms.1|
|Sustainable investments||These are investments in businesses that are contributing to sustainable solutions for both environmental and social issues.|
Source: Swiss Sustainable Finance, Swiss Sustainable Investment Market Study 2022, p. 13
1 (Global Compact, ILO, UNICEF, UNHRC). These include, for example, the UN’s Guiding Principles on Business and Human Rights, the International Labour Organization’s Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy, and the OECD’s Guidelines for Multinational Enterprises.