Cutting Through the Greenwash: Asset Management Association Switzerland’s Sustainability Self-Regulation Unpacked

The Sustainability Self-Regulation applies to fund management companies, SICAVs, Swiss Limited Partnerships, SICAFs, asset managers (de minimis or not) and other financial institutions, such as banks and securities firms, which manage collective investment vehicles defined as “collective assets” (eg, funds, pension funds) linked to sustainability. However, it does not apply to other financial services as defined in the Financial Services Act. The concept of “sustainability” is at the core of this self-regulation. A mere nod to isolated elements or strategies of sustainability, such as exclusions or ESG integration alone, is not considered sufficient. Similarly, publishing a sustainability report for a portfolio that is clearly not managed sustainably also falls short.

Under the Sustainability Self-Regulation, a portfolio qualifies as sustainable if it aligns with ESG criteria and follows the traditional types of sustainable investment approaches, namely:

According to AMAS, these investment approaches are essentially based on the AMAS and Swiss Sustainable Finance (SSF) document “How to Avoid the Greenwashing Trap: Recommendations on Transparency and Minimum Requirements for Sustainable Investment Approaches and Products” issued in December 2021.

Given the breadth of this concept, generally a mixed investment approach is necessary for managing the collective assets in compliance with the Sustainability Self-Regulation. In the absence of such a holistic approach, the regulation's applicability could be questioned. Specifically, AMAS has clarified that solely employing the “ESG integration” approach does not suffice; if that is the case, it must be clearly stated that the relevant collective investment vehicle is either not sustainable or not managed sustainably. The same holds true if a sustainability policy relies solely on the exclusion approach.

It is important to note that the non-application of the Sustainability Self-Regulation does not mean that references, even isolated, to a particular approach or generic references to sustainability or ESG are free from the risk of constituting greenwashing. This is particularly the case if such references are misleading, confusing, or do not accurately represent the nature of the assets or their management.

AMAS has clarified that if there is no reference to sustainability, the Self-Regulation prohibits labelling or presenting investments as "sustainable." This includes the use of terms like “green”, “ecological”, or “ESG”.

The application of comparable foreign standards will be sufficient to comply with the Sustainability Self-Regulation issued by AMAS. It is also permissible to apply the principles of the Sustainability Self-Regulation to a specific portion of the collective assets, while concurrently using comparable foreign standards for another portion of those assets.

At this stage, AMAS has already confirmed that EU SFDR will be considered a comparable foreign standard if applied by Swiss managers. In other words, the voluntary compliance of a Swiss manager with EU SFDR will sufficiently represent compliance with the principles set out in the Sustainability Self-Regulation.

The sustainability policy outlining the investment approach being followed (eg, exclusions, impact investing, thematic investing, etc) must be accessible to investors. Internal guidelines are insufficient for this purpose, as they are generally not available to investors. According to AMAS, a website or similar platform can be used to make the policy accessible, provided it allows investor access.

The asset management agreement (directly or via an annex) must set out the minimum proportion of investments that are required to meet the sustainability requirements defined in the investment policy, including the minimum threshold of investments that are to be managed with reference to sustainability in accordance with the investment policy. According to the Sustainability Self-Regulation, the percentage of investments not covered by the sustainability requirements must be stated and explained.

Compliance with the minimum threshold is determined based on the time at which the investment decision is made, or the time of the index adjustments in the case of portfolios of collective assets that replicate a sustainability index. According to AMAS, the way in which the corresponding requirements are formulated in the relevant sustainability policy is decisive here. For instance, regarding real estate funds, the relevant investment policy applies to the entire portfolio. As such, not every property needs to meet certain efficiency criteria at the time of its acquisition. Instead, what matters is that the overall objectives outlined in the investment policy are achieved at the portfolio level.

Investors are informed of sustainability approaches in a report at least once a year. For those following impact investing approaches, the yearly report must specify the degree to which sustainability objectives have been met. In the case of Swiss real estate funds, the sustainability indicators are published in accordance with the “Specialised information on real estate funds” issued by AMAS. In addition, AMAS has clarified that collective investment schemes exclusively using the ESG integration approach may also issue a sustainability report, provided it is explicitly stated that the investment vehicle is not managed sustainably. This reporting obligation can be delegated to a third party.

The Sustainability Self-Regulation enters into force on 30 September 2023, except for provisions requiring a change in the fund documentation, which are subject to FINMA’s approval. In the latter case, corresponding amendments must be submitted to FINMA by 30 September 2024. Investment management contracts entered into with pension funds must be updated by the first contractual term or update taking place after 30 September 2024.

The entry into force of the Sustainability Self-Regulation is a further step towards integrating sustainability concepts, principles and rules into the Swiss regulatory framework. The coming months will be pivotal in determining the balance between self-regulation, strict regulatory measures, or a blended approach. Regardless of the path chosen, AMAS remains committed to advancing solutions and initiatives for a robust sustainable framework in the Swiss asset management sector. This includes the forthcoming Swiss Stewardship Code, co-developed with the SSF, and the promotion of the existing Swiss Climate Scores.