In 2020, the Federal Council set the goal of making Switzerland a leading location for sustainable financial services.
Therefore, FINMA has set a strategic goal of contributing to the sustainable development of the Swiss financial center by focusing on two topics: climate risks and greenwashing.
FINMA is committed to ensuring that supervised institutions appropriately manage climate-related financial risks. FINMA is in discussion with the largest supervised institutions on how to deal with climate-related financial risks. They are also developing appropriate supervisory concepts and addressing the difficult issue of measuring climate risks.
Disclosure of climate risks
FINMA sees a need for action in the area of transparency on climate risks. It has therefore specified the disclosure requirements for climate-related financial risks in the end of May 2021. FINMA is obliging large banks and insurance companies to provide qualitative and quantitative information in this area and is adapting its circulars on disclosure. In the future, the institutions will have to describe the material climate-related financial risks and their impact on the business strategy, business model and financial planning (strategy). They must also disclose the process used to identify, assess and manage climate-related financial risks (risk management), as well as quantitative information (including a description of the methodology used). Finally, institutions must describe the key features of their governance structure related to climate-related financial risks. The revised circulars came into force on July 1, 2021. Initially, only large banks and insurance companies (supervisory categories 1 and 2) will fall within the scope of the disclosure requirements for climate-related financial risks, according to FINMA.
FINMA’s mandate includes protecting investors from improper business conduct. In preventing and combating greenwashing, FINMA is primarily concerned with ensuring that investors are not deceived about supposed sustainability promises regarding financial products or in the provision of financial services.
The legal foundations in Switzerland contain a ban on deception with regard to collective investment schemes. However, they do not contain any specific sustainability-related disclosure obligations at product level in contrast to EU’s SFDR regulation or the UK’s planned sustainable finance regulation. The general provisions on the content of product documentation apply, as well as the duty to provide information in the context of conduct obligations. There are neither legal definitions nor regulatory requirements for the use of material terms in the field of sustainability such as “sustainable”, “ESG” or “green”. This limits FINMA’s room for maneuver accordingly.
FINMA takes up the greenwashing risk as part of its supervisory activities. In the case of Swiss collective investment schemes with sustainability-related investments, this occurs in particular in particular in the Approval Process. It also pays increased attention to the appropriate organization of institutions managing Swiss or foreign collective investment schemes with sustainability-related investments. FINMA also raises awareness among financial service providers of greenwashing risks in the advisory process at the point of sale.
FINMA ensures that the sustainability characteristics are adequately disclosed. It verifies that investors are not misled about the sustainable features of the collective investment scheme. When approving and amending licenses for Swiss collective investment schemes with sustainability features, FINMA systematically reviews the fund documentation.
In February 2021, FINMA informed fund management companies about its expectations regarding the content of fund documentation for Swiss collective investment schemes with a sustainability focus. In particular, it is not sufficient if the sustainability criteria in the explanations on the investment strategy and investment policy of the fund documentation are not defined or only defined at a high level. It is also not sufficient if the selection of permissible investments and the integration of sustainability criteria into the investment decision process are not specified. FINMA has already identified several cases of greenwashing during its review of fund documentation.
Our Regulatory Watch team is following the sustainability topic very closely across all financial markets in Europe and provides you with timely updates.