Swiss financial institutions change self-regulation ahead of government decision on ‘eco-shaming’

Swiss asset management and banking authorities are updating their self-regulation guidelines for sustainable finance ahead of the Federal Council’s decision on green money laundering, which will be taken by August.

In October, the Swiss Federal Department of Finance (FDF) announced plans to develop a proposal to implement the Council’s position on “eco-shaming” as state regulation unless self-regulation for sustainable finance is deemed sufficient.

The Council published its position on preventing an eco-economy in the financial sector in December 2022. It states that financial products and services labeled as sustainable or with sustainable features should be consistent with or contribute to at least one Sustainable Development Goal.

Following FDF’s October announcement, the Swiss asset manager, banking and insurance associations issued a joint statement welcoming the Federal Council’s approach to green money laundering and committing to engage in dialogue with the authorities on sustainable finance.

The asset manager and banking authorities are in the process of reviewing their self-regulatory guidelines to meet the Council’s requirements, while the insurance association is developing the first set of self-regulatory principles for its members.

– said Adrian Schatzmann, CEO of Asset Management Association Switzerland (AMAS). Responsible Investor that the group’s updated self-regulation will aim to improve the quality of jointly managed sustainable assets and ensure transparency through comprehensive documentation and reporting obligations to prevent eco-shadow money laundering.

The association’s regulations, which apply to its 180 members, are being “clarified and supplemented” to improve the quality of the framework in “close cooperation” with authorities, including the government, to ensure that self-regulation meets the Council’s requirements and reflects the development of sustainable finance, he added.

The current AMAS guidelines establish certain thresholds. For example, exclusions or inclusion of ESG criteria are not sufficient for a financial product to be classified as “sustainable”.

Managers are also required to report on achieved sustainability targets based on “relevant and transparent” KPIs for any investment strategies with the intended sustainability impact.

Asset managers have a responsibility to document sustainability policies and approaches, as well as the metrics, data points and analytical tools used in their investment strategy, and explain the principles of their management strategy.

Changes to the updated rules will include new guidance reflecting the Council’s demands on the Sustainable Development Goals.

This was confirmed by a spokesman for the Federal Council Responsible Investor that it will comment on guidance issued by the three financial bodies by the end of August, before setting out next steps on potential eco-shaming legislation.

Asset management

The asset management body published its 2022 self-regulation, which came into force last September. According to Schatzmann, further guidance for its members on sustainable finance is needed due to the lack of definitions and standards.

He said RI that while introducing and changing regulations can be cumbersome, a rules-based system can adapt much more quickly to a changing market and landscape.

The question of whether the government should now take the initiative and introduce regulations for sustainable finance has been the subject of debate in the Swiss market.

AMAS pushes for continuous self-regulation. Schatzmann pointed to challenges with the EU’s Sustainable Finance Disclosure Regulation (SFDR), adding that the framework is not “adapted to market reality.”

While there is no broader regulation on sustainable finance or “eco-shading” in Switzerland, the Swiss Financial Market Authority introduced transparency requirements for funds in 2021, using the terms “sustainable”, “green”, “ESG” or “sustainability”.

Banking sector

Separately, the Swiss Banking Association (SBA) has reviewed its existing self-regulation to implement the Federal Council’s position on preventing eco-economy, a spokesman confirmed RI.

The banking body – with around 270 members including UBS, UBP and Lombard Odier – also introduced self-regulation on sustainable finance in 2022. The rules, which entered into force in January 2023, act as binding guidelines on the integration of sustainability criteria in investment advice and portfolio management.

Members are also required to comply with information, documentation and accountability requirements related to the assessment of ESG preferences and to integrate ESG topics into the training of client advisors.

Finally, in January 2025, “self-regulation by the Swiss Insurance Association (SIA) will come into force to avoid ‘eco-shadowing’ in life insurance policies linked to insurance funds with reference to sustainability.”

There will be a transitional period until the end of 2026 to implement the new rules before the regulation comes into force in 2027.

The disclosure framework will cover the creation, quality, presentation and disclosure of specific sustainability-related product features, an SIA spokesman confirmed.

The guidance will ensure that insurers and their agents discuss customer sustainability preferences and implement appropriate ESG preferences in their products.

Self-regulatory disclosures will be reported to the SIF’s Secretariat of State for International Finance, while compliance will be monitored by the insurer’s internal and external auditors.