Switzerland’s banking sector is facing scrutiny for its approach to sustainable finance, with calls for stricter regulation to combat the issue of “greenwashing.” Greenwashing involves organizations making misleading sustainability claims to investors or consumers to improve their image and profitability, undermining genuine efforts to address climate change and environmental issues.
Critics argue that Switzerland’s banking sector has not done enough to prevent greenwashing and needs government oversight to ensure accountability. There is currently no legal definition of the term “greenwashing” in Switzerland. The government is expected to make a decision on whether to introduce state regulation, which could change the landscape of sustainable finance in the country.
The Swiss Bankers Association (SBA), representing major banks such as UBS and Julius Baer, as well as smaller banks, is advocating for continued self-regulation. They contend that self-regulation allows for quicker implementation and adaptation to evolving requirements in the sustainable finance sector.
However, critics argue that self-regulation is inadequate and often lacks stringent targets. They believe that sustainable financial products must align with global climate targets, such as the Paris Agreement, to have a meaningful impact on mitigating climate change. While self-regulation may serve as a starting point, they argue that it cannot effectively prevent greenwashing and holds the sector accountable.
The World Wide Fund for Nature (WWF) in Switzerland emphasizes the need for sustainable products to meet the requirements of international climate targets, particularly those outlined in the Paris Agreement. Without stricter oversight and enforcement, there is a risk that self-regulation may not be sufficient to combat greenwashing effectively.
Regulators are concerned about the rising instances of greenwashing globally, as it undermines credibility and hampers the progress made in addressing environmental issues. According to RepRisk, a Swiss environmental, social, and corporate governance data provider, cases of greenwashing by banks and financial services companies worldwide increased by 70% in the past year.
Switzerland, known as a major center for asset and wealth management, accounted for around 1.6 trillion Swiss francs (approximately $1.79 trillion) in sustainable investments in 2022, according to Swiss Sustainable Finance (SSF), an industry association. However, there are no official figures regarding the extent of greenwashing in Switzerland.
Hans-Ruedi Mosberger, the head of asset management and sustainable finance at the SBA, believes that most instances of greenwashing are due to misunderstandings and communication problems rather than deliberate deception. The SBA issued new rules earlier this year governing the advice that can be provided to clients regarding sustainable investments.
UBS, Switzerland’s largest bank with $5.5 trillion in invested assets, also supports the concept of self-regulation, arguing that it sets a minimum standard for the industry.
Switzerland’s approach to sustainable finance differs from that of the European Union, the United Kingdom, and Singapore, where governments have adopted stricter enforcement measures to combat greenwashing. Experts predict that Swiss banks will face a wave of new regulations, with estimated costs ranging from 100 million to 200 million Swiss francs to adjust their processes to meet the evolving sustainability requirements.
The issue of greenwashing and sustainable finance regulation is expected to remain a significant topic of discussion in Switzerland as the government determines whether to introduce tighter oversight to protect investors and the integrity of sustainable finance products.
