Greenwashing: definition and challenges for the Swiss banking sector

The fight against greenwashing involves all players in the financial sector, in Switzerland and globally. The credibility of financial products and services is at stake. In this glossary, you will find the definition of greenwashing in the banking sector and the measures taken to prevent it.

Definition of greenwashing

Greenwashing refers to the communication strategies used by an economic organisation or a bank to create a misleading impression or representation of its environmental actions. For a company, greenwashing means passing on information to consumers that distorts the truth. Through these marketing claims, the company aims to project an eco-responsible image, which it does not genuinely possess.

According to Wikipedia, the term greenwashing first appeared in the early 1990s. It came into widespread use in the 2000s with advertising aimed at greening the image of certain companies.

What is greenwashing in banking?

Investors are increasingly interested in green and sustainable finance. They attach importance to the ESG responsibility practices of financial players. They are seeking to ensure that their investments are made in a responsible and sustainable manner. Unfortunately, this has led to the development of questionable practices such as greenwashing.

Sustainable investments are estimated to account for 36% of all professionally managed investments globally.. The proportion of so-called sustainable investment is expected to increase by an average of 7% annually from 2021 onwards. This figure may rise to 20% in some countries.

The Federal Council gave its own definition in its press release of 25 October 2023. It writes: “in the financial sector, the term ‘greenwashing’ is used when customers are misled about the sustainable nature of financial products and services”.

Why is combating greenwashing important for Swiss financial institutions?

As one of the world’s leading financial centres, Switzerland has a duty to apply the highest international standards. Other financial centres, such as Luxembourg, Singapore and the United Arab Emirates, are making great strides in terms of sustainable finance and ESG standards.

Switzerland is clearly a leader in this field:

To date, there have been no known cases of sanctions for greenwashing in Switzerland.
Aware of the growing risk, FINMA is closely monitoring compliance with obligations to protect clients and investors against deception.
The authorities and self-regulatory associations are working together to prevent and combat these practices. They damage the reputation of the Swiss financial centre, and hence its growth.

Switzerland is also a significant hub for global trade. In the past, it has been affected by scandals involving shipping, fossil fuels, and metal extraction. These events have prompted actions to prevent such risks.

How does Greenpeace denounce greenwashing in sustainable finance?

In 2021, Le Temps published an article on a study carried out by Greenpeace Switzerland and Luxembourg on 51 so-called sustainable investment funds and 25 institutional funds. One of the findings was that there was no statistical difference between sustainable funds and conventional funds. The only exceptions were the cement and arms industries.

What is Switzerland doing to combat greenwashing?

Global organisations such as Greenpeace are urging Switzerland to define legally binding standards. At present, Switzerland has opted for self-regulation to deal with the problems of greenwashing. Associations impose rules and best practices on their members. These include the SBA, the AMAS and the ASA.

What is the Federal Council’s position on preventing greenwashing?

In December 2022, the Federal Council published its position on preventing greenwashing in the financial sector. The Federal Department of Finance (FDF) is responsible for implementing this position.

The Federal Council’s press release on 25 October 2023 refers to the proposed regulation in the form of an ordinance. It should supplement the standards resulting from self-regulation. This draft was scheduled to be submitted to the Federal Council by the end of August 2024.

However, the FDF has specified that, in the presence of “self-regulation that effectively implements the Federal Council’s position”, it will refrain from issuing regulations.

The Federal Council’s press release on 19 June 2024 reports progress in preventing greenwashing in Switzerland. New self-regulatory provisions drawn up and adopted by the SBA will come into force, with transitional periods between now and January 2027. They will expand on the measures already in force and meet the Federal Council’s requirements on greenwashing. As stated in the press release, the Federal Council “has decided not to draw up any regulations for the time being” for this reason.

💡To find all the regulatory and self-regulatory texts on greenwashing, you can use the search engine in our RegTech e-Reg solution.

What is FINMA’s position on the fight against greenwashing?

For FINMA’s opinion on this subject, see :

FINMA communication on supervision 05/2021 ;
the risk monitoring report produced by FINMA in 2021.

FINMA states it sees a long-term trend favoring of sustainable investments. It emphasizes that it pays very close attention to risk within its authorisation and supervisory remits.

Why and how is the subject of greenwashing by definition evolving?

In Switzerland, Europe and the rest of the world, the subject of greenwashing is still very much in the news.

For the time being, the pragmatic and prescriptive approach has prevailed in Switzerland with a new version of reinforced self-regulation. However nothing is set in stone.

What impact will the sometimes climate-sceptic or pro-fossil fuel American positions have, depending in particular on the outcome of future elections? Only time will tell, although Europe is unlikely to see a reversal in ecological policy or practice (in terms of sustainability and environmental standards).

👉To discover other definitions around RegTech, we suggest you return to our glossary table of contents.

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