Over the past years, financial market participants have seen increased regulatory pressure on sustainability-related topics. Whether in Europe, North America or Asia, regulators have started implementing regulations to fulfil three main objectives:
- 1) improve transparency on the sustainability characteristics of financial products;
- 2) promote classification systems for financial products based on their sustainability characteristics;
- 3) require the integration of clients’ ESG preferences in advisory services.
The following analysis considers these three objectives, how they are being fulfilled in Switzerland and in foreign jurisdictions, and how regulators can improve the status-quo in Switzerland.
First, regulation can improve transparency on the sustainability characteristics of financial products. Higher transparency can mitigate greenwashing risk and standardisation of dis- closed information can enhance comparability across products. In Switzerland, the Federal Council has recently been more proactive, enhancing the existing industry self-regulations. It has also mandated the Federal Department of Finance to propose disclosure requirements for sustainable financial products and services and is pushing for sectoral agreements for net-zero targets. Despite Switzerland’s regulatory dynamics and tradition, there is still a margin for improving the Swiss framework on sustainability-related disclosures of financial market participants in light of regulatory developments in the EU and the US.
Second, regulation can promote classification systems for financial products based on their sustainability characteristics. Clarity around the product characteristics and objectives help ensure that end-investors buy products that fit their needs. It also improves the trust in the market. While foreign regulators such as the EU, the US, the UK and China have started proposing rules for classifying and labelling products, namely funds and bonds, Switzerland plays a waiting game and adopts a market-based approach.
Third, regulation can require the integration of sustainability preferences of clients in advisory services. Requiring information on clients’ sustainability preferences helps ensure that advisers act in the best interest of their clients, by offering products that meet clients’ sustainability preferences along with their financial ones. In Switzerland, advisers do not have explicit requirements for inquiring clients’ sustainability preferences. However, industry associations, such as the Swiss Bankers Association, have developed self-regulation relating to ESG integration in the advisory process.
E4S SUSTAINABLE FINANCE REGULATION SERIES
This E4S Series on Sustainable Finance Regulation investigates regulatory developments in Europe and beyond and discusses the implications for Swiss corporate and financial market actors, regulators, and civil society. Swiss Subsidiary Tradition in Light of Foreign Approaches sets the stage in assessing regulatory objectives and comparing regulatory approaches for sustainable finance across jurisdictions. Corporates: Comparative Analysis for Switzerland compares sustainability-related reporting regulation targeting corporate actors across juris- dictions and provides recommendations for the Swiss context. In a third white paper, Financial Market Participants: Comparative Analysis for Switzerland, the series highlights the specificities and implications for financial market actors.
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