The integrity of financial 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.
Types of greenwashing
There are three main types of greenwashing:
- The first is scientific. The science underlying sustainable finance is still in its infancy, and opinions vary. In particular, there is no consensus as yet on how to measure the impact of financial products, so it is still not easy to prove just how “sustainable” a given product is. 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. They must decide which criteria and practices are most important for their needs.
- The second type concerns 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.
- Finally, perceived greenwashing is what happens when 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.
Three areas in which greenwashing must be addressed
Based on the three types described above, 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 engages in business practices that contradict the image it communicates, it is guilty of greenwashing.
- Making false or misleading claims about a product’s sustainability credentials or its composition also constitutes greenwashing. Financial market law already sanctions false or misleading information. 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.
- Units of a bank that advise customers must ensure that environmental, social and governance (ESG) criteria are incorporated into their advisory processes and that customers’ expectations are met, e.g. by regularly asking customers about their preferences and providing training for staff. Failing to do so qualifies as greenwashing.
Institutions can address these three areas by embedding sustainability into corporate strategy, focusing on clear and accurate product information, and training their staff. The three areas also provide a sound basis for developing specific measures to prevent greenwashing, which is essential – not least for the sake of the financial industry’s reputation. The overwhelming majority of providers take the challenge of sustainability seriously and want to make a positive contribution.
The SBA’s stance
SBA activities and measures
The advisory process plays a central role in the banking business. This is where the SBA sees the greatest potential for eradicating greenwashing. Working together with its members, it has drawn up a principles-based Guideline for the integration of ESG considerations into the advisory process for private clients. Ongoing staff training is one of the key points. Principles-based means that individual institutions can apply the Guideline in accordance with their size, structure, complexity, operations and risks.
The SBA also supports the adoption of international initiatives such as the UN’s Principles for Responsible Investment (PRI) and Principles for Responsible Banking (PRB) with a view to arriving at an academic consensus on preventing greenwashing. Furthermore, we are working with other associations to improve sustainability-related disclosure. This is the only way to make sure that investors are provided with the clear and accurate product information they need and thus that their expectations are met.
Our partners’ activities and measures
The Asset Management Association Switzerland (AMAS) and Swiss Sustainable Finance (SSF) are working on product-level recommendations to improve the clarity and accuracy of product information at the portfolio level. These will be published in the next few months. The two organisations have also published the following recommendations:
- Sustainable Asset Management: Key Messages and Recommendation of AMAS and SSF
- SSF Reporting Recommendations on Portfolio ESG Transparency
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.|
|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 based on activities that are not considered suitable for investment. Exclusion criteria (based on norms and values) can refer to product categories (e.g. weapons or tobacco), activities (e.g. animal testing), or business practices (e.g. severe violation 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 above-market rates, depending on 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 thematic investments||These are investments in businesses contributing to sustainable solutions for both environmental and social issues.|
Source: Swiss Sustainable Finance, Swiss Sustainable Investment Market Study 2019, p. 14
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.