The Federal CouncilBern, 16 December 2022
The Federal Council's position on the prevention of greenwashing in the financial sector
1. Greenwashing
Greenwashing occurs in the financial sector when, for example, a financial instrument orservice is portrayed as having sustainable characteristics or pursuing sustainability goals, andthis portrayal does not adequately reflect reality.
The main risks in connection with greenwashing are:a. Clients, investors and insured persons risk being misled about the sustainability
or contribution to sustainability of financial products and services.
b. Without the necessary clarity about what constitutes a sustainable investment,
financial institutions are exposed to legal and reputational risks.
c. The smooth functioning of financial markets and the reputation of the Swissfinancial centre may be impaired. A lack of credibility would prevent Switzerlandfrom assuming its desired role as a leading centre for sustainable finance.
d. Capital flows that are intended to contribute to sustainability goals could instead
be diverted to non-sustainable activities. In addition, this can complicate theachievement of the international sustainability goals to which Switzerland has
committed (environmental objectives or broader sustainability goals).

2. Situation in Switzerland
Currently, Switzerland has no legislative or regulatory requirements on transparency orcompliance with specific sustainability criteria for financial services. Similarly, there are no suchobligations for financial products, with the exception of funds, for which certain transparency
requirements apply; these were defined in detail by the Swiss Financial Market Supervisory
Authority (FINMA) in November 2021. Based, notably on the prohibition of confusion anddeception, FINMA requires increased transparency in fund documentation if this uses theterms "sustainable", "green" or "ESG"1, or otherwise refers to sustainability, including about
the fund's sustainability goals. It also recommends sustainability reporting for these funds as
best practice.2 As regards financial services, FINMA does not impose any specificrequirements in connection with greenwashing at the point of sale, due to the lack of anadequate legal basis.
Since the end of 2021, the Asset Management Association Switzerland (AMAS), the SwissBankers Association (SBA) and Swiss Sustainable Finance (SSF) have taken important steps
in the form of recommendations and voluntary self-regulation. In so doing, they are working toincrease transparency for investors and clients about certain non-financial aspects of their

1 Environmental, social and governance criteria
2 FINMA supervisory communication 05/2021, 3 November 2021

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investments, and to improve the training of staff at the financial institutions selling this type ofinvestment.
a. The AMAS and SSF recommendations of December 20213 divide investors'
sustainability goals into three categories: investments to minimise financial risks
and optimise performance in line with ESG criteria, investments aligned withpersonal values, and impact investments.
b. In June 2022, the SBA published voluntary self-regulation guidelines4 which
require member institutions to take their clients' ESG preferences into account.
The guidelines also include training obligations for the staff of financial service
providers. These obligations should improve the quality of services.
c. AMAS published a self-regulation in September 20225 describing, inter alia,
sustainability-related investment approaches. In particular, it excludes twoapproaches if they are used in isolation: firstly, the inclusion of ESG risks andopportunities in conventional financial analysis and investment decisions (ESGintegration); secondly, the systematic exclusion of certain issuers from an
investment portfolio.
3. The Federal Council's positiona. Sustainability goals
Financial market laws aim to protect investors, insured persons and the creditors of financial
service providers, and ensuring the smooth functioning of financial markets. At least someclients, investors and insured persons who choose a so-called sustainable financial product orservice are looking to pursue a sustainability goal. Therefore if, for example, a financial productor service is described as "green", investors, insured persons and clients should be able toassess the extent to which it pursues an environmental objective.
In both its strategy for the Swiss financial centre and its foreign policy strategy for 2020 to2023, the Federal Council stated that it wants to further strengthen and promote Switzerland
as a location for sustainable financial services.
For these reasons, the Federal Council considers it essential to ensure that the necessary
clarity exists to enable clients, investors and insured persons to make investment decisions
about financial products or services that are described as sustainable. The Federal Council
therefore sees a need for a common understanding in the financial sector about the generalcriteria permitting investment objectives, and hence products and services, to be labelled assustainable. Inherently, this cannot involve detailed prescriptions, but only a baseline
understanding. This common understanding of sustainability goals should apply to the entire
financial market, financial services (both at the point of sale and in downstream reporting) andfinancial products (both for pre-contractual obligations and in downstream reporting). This will
ensure a level playing field in terms of transparency for all financial services and products, andthe credibility of the Swiss financial centre as a whole. A high level of credibility is a prerequisite
for a financial centre to assume a leading role in sustainable investment. In this regard, the3 AMAS and SSF, Recommendations on Transparency and Minimum Requirements for Sustainable Investment Approaches and Products:

https://www.sustainablefinance.ch/upload/cms/user/RecommendationsforSustainableInvestmentProducts_AMAS_SSF.pdf
4 SBA, Guidelines for the financial service providers on the integration of ESG-preferences and ESG-risks into investment advice and portfolio management(2022),
https://www.swissbanking.ch/_Resources/Persistent/a/5/e/0/a5e0845f065a60699df88910ae675b7082e69411/SBA_Guidelines_investment_advice_and_
portfolio_management_EN.pdf
5 AMAS, https://www.am-switzerland.ch/en/regulierung/selbstregulierung-standard/sustainable-finance2Federal Council is taking its cue from the United Nations' 2030 Agenda for Sustainable
Development.
Sustainable investment objectives
Financial products or services that are labelled as sustainable or as having sustainablecharacteristics must also pursue at least one of the following investment objectives in
addition to their financial goals:(i)

Alignment with one or more specific sustainability goals, or(ii)Contribution to achieving one or more specific sustainability goals.

Financial products and services that are aimed at reducing ESG risks or optimising
performance follow purely financial investment objectives and should therefore not bedescribed as sustainable, unless they also pursue one of the investment objectives outlinedabove. Indeed, ESG risks should rather be taken into account as part of fiduciary duties.

The product documentation or the financial service provider should specify whether theinvestment objective being pursued is an alignment goal, a contribution to the achievement of
one or more specific sustainability goals, or a combination of both.
The sustainability goals should be defined using the widest possible reference framework, forinstance the Sustainable Development Goals in the United Nations' 2030 Agenda for
Sustainable Development.
A sustainable financial service with an alignment objective could, for example, invest
exclusively in equities and bonds of companies whose transition plans are all aligned with thegoal of limiting global warming to 1.5° Celsius compared to the pre-industrial age.
A product aimed at contributing to the achievement of a sustainability goal will typically apply
an impact investment approach (incl. real estate investments), a credible active ownershipapproach or a combination of the two. Impact investments must aim for a credible, causal andmeasurable impact. This could be direct investment in new solutions for renewable energy, forexample. Active ownership could be achieved by actively selecting target companies whichhave a significantly negative impact on the climate or on biodiversity. Through coordination
with other investors, dialogue and the exercise of voting rights, active ownership can ultimately
compel the companies concerned to define specific, credible and measurable targets for
reducing their negative impact.
b. Description of applied sustainability approaches
A financial service provider which offers a sustainable product or service should describe itssustainability approach. This information should be public, easily accessible, transparent andcomparable. Thus, a service provider that pursues an alignment objective should describe how
this alignment is concretely achieved and measured in the investment process. Under theimpact investment approach, the provider should describe the management process used toachieve the desired impact, define the key performance indicators for measuring the effective
impact and monitor these indicators so that the investment strategy can be optimised asnecessary. Under the active ownership approach, the service provider should provide precise
information on the following points: the selection process for its target investments,3

coordination with other investors, the process for influencing the target company, escalation
procedures and the processes for assessing the effectiveness of engagement.
c. Accountability
There should be regular, efficient and appropriate reporting on the defined sustainability goals.
In the case of climate alignment goals, recognised and relevant indicators should be used. The
Federal Council recommends the Swiss Climate Scores in this regard. Under an impact
investment approach, reporting should focus on strategy implementation, and the impacts
should be measured using the predefined key performance indicators. Under an active
ownership approach, reporting should include the defined targets, the discussions held, theresults of the engagement and compliance with the processes.
d. Verification by an independent third party
Implementation of the transparency principles outlined above should be verified by anindependent third party, in order to ensure the credibility of the sustainability goals.
e. Binding nature, enforcement and client rightsObligations should be binding and enforceable. Moreover, in the event of non-compliance withthe transparency requirements, clients, investors and insured persons should have recourseto legal action.
4. Next steps
The FDF (SIF) has been instructed to set up a working group together with the DETEC, theEAER, the FINMA, and representatives from the affected industries and civil society todetermine the best way to implement the Federal Council's position on the prevention ofgreenwashing. It is important to ensure that the chosen solution is applied across the financial
market, is binding and enforceable, and provides clients with legal remedies. By 30 September
2023 and based on these activities, the FDF (SIF) is to present the Federal Council with a planand concrete proposals for putting the Federal Council's position on the prevention ofgreenwashing into practice.

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