• Patrick Schmucki, Director |

The FINMA guidance addresses disclosures of funds, organizational structure of managers and the design of the advisory process. An integrated approach effectively addresses greenwashing risk, helps firms implement sustainable investing in an authentic manner and embeds the topic in the organization.

1. Sustainability-related information for funds

In February 2021 FINMA informed all management companies of its expectations about the content of the investment policy and prospectus of funds with a sustainable investment policy. Ever since, the industry has struggled with the FINMA expectations during the approval process of Swiss collective investment schemes.

FINMA's guidance provides a list of constellations it considers greenwashing. Moreover, the regulator expects reporting on the extend a fund has achieved its sustainability goals. Broadly, this reflects the requirements of the Sustainable Finance Disclosure Regulation (SFDR) in the EU, in force since March of this year. 

At its core, a solid sustainable investment strategy should answer the following three questions:

  1. Does the strategy promote environmental, social or governance characteristics?
  2. What are the objectives the investment strategy is contributing to (e.g. a fund focused on environmental issues could contribute to climate change mitigation, preservation of marine resources or biodiversity)?
  3. What indicators are used to measure the realization of goals, and what are the respective target values (e.g. CO2-intensity of the portfolio for funds considering climate objectives)?

Note that the mere consideration of sustainability risks does no longer – at least not in a European context – suffice to consider a strategy "sustainable". The threshold for "impact" funds is even higher. Not only must a fund have positive impacts to a set of real-world outcomes, they must also be directly related to the fund's activities (for example, engagement activities by the manager or real estate renovation). The managers of such products must have sophisticated processes in place to measure and verify the development of the tracked indicators.

2. Organizational structure of fund managers

During the summer FINMA conducted on-site visits to several fund managers. The key findings are reflected in the guidance. Some points raised by FINMA are noteworthy:

  • Investment decision process/investment controlling/risk management: ESG considerations are often poorly integrated into the second line of defense. The respective approaches often disregard the qualitative aspects of sustainable investments (e.g. challenging the exercise of voting rights or the implementation of engagement strategies).
  • Specialist expertise and knowledge: A lack of knowledge is often observed across the organization. Training should cover most of the company's staff, but can only ensure basic knowledge. Many companies decide to build "ESG expert teams" that help the first, second and third line of defense address sustainability issues relevant to their daily business. 
  • Sustainability strategy: There is an inherent greenwashing risk if product providers develop and offer products that do not align with their corporate vision, strategy, and existing product offering. As a result, sustainability needs to be explored and clarified as a strategic matter. For asset management companies in particular, their product offering is the key lever to bring their sustainability strategy to life.

Many product providers deal with greenwashing risk by establishing controls for external communications, which is ineffective, costly and delays time to market.

Effective management of greenwashing risk requires its consideration during the entire product governance process:

  • Design and approval: What the ESG-fund can and cannot do, the appropriate data requirements and necessary reporting processes must be defined. Also, it needs to be clear what kind of sustainability preferences of an investor the product could address.
  • Development and implementation: Sales staff and distributors must be trained on the product characteristics and provided with materials and tools to enable them to accurately inform investors.
  • Launch and promotion: A product provider must ensure ongoing compliance with the ESG-related product features and identify new risks that could compromise the sustainability-objectives of the product.
  • Monitoring and review: Manufacturers should systematically get feedback from sales staff, distributors or investors and ensure that it is communicated to the appropriate target market to keep product features relevant to them.

3. Code of conduct at the point of sale

FINMA emphasizes that the advisory process can also pose greenwashing risks if sustainability-related financial products are offered. Find our blog on this topic here.


With its guidance, FINMA has raised the bar for sustainable funds and reflects the EU standards but leaves enough flexibility for individual approaches. This is a positive development given Switzerland's ambition as a global hub for sustainable finance. Although the guidance is explicitly addressed to institutions managing sustainability-focused collective investment schemes, the same principles can also be applied to managing segregated mandates, Real Estate Investment Trusts or Investment Foundations.

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