Greenwashing and

greenwishing –
a regulatory view

www.pwc.ch
Authors:
Dr Antonios Koumbarakis, PwC Switzerland
Sofia Jaccard, PwC Switzerland
Martje Timmermann, PwC Switzerland
Lara Rossi, PwC Switzerland
Katja Zimmermann, PwC Switzerland
Table of contents
1. Introduction 4
2. Greenwashing and greenwishing 5
3. Regulators are on the move 6
3.1 | Switzerland 7
3.2 | EU 8
3.3 | Germany 9
3.4 | France 9
3.5 | UK 10
3.6 | USA 11
3.7 | Hong Kong 12
3.8 | Singapore 12
4. Grasping the essence of greenwashing 13
4.1 | Comparison of definitions 13
4.2 | Comparison of greenwashing scenarios 15
5. Greenwashing risks and challenges for financial institutions 18
6. Preventing and managing greenwashing risks  19
7. Conclusion and outlook 21
References23

Greenwashing and greenwishing – a regulatory view | 3

1. Introduction
Reflecting the rapid global growth of markets for
sustainable financial products, the Swiss market for
sustainable investments continues to substantially
expand in volume and increased by 30% to CHF
1,982.7 billion in 2021.1 Augmenting this paradigm
shift in financial markets, the Swiss Federal Council
declared its ambition for Switzerland to become a
leading location for sustainable financial services. In
the same breath, the Federal Council identified one of
the keys to materialising its ambition – protecting the
stability and trustworthiness of financial markets.
4 | Greenwashing and greenwishing – a regulatory view
This in turn builds upon the availability of sustainability-
related information for market participants, as well
as the comparability and quality of such information.
As the market for sustainable financial products
keeps growing, these main pillars of trust in financial
markets are increasingly at risk of budging. With the
rise in available sustainable products and sustainability
information, there is an increasing risk that a
product and the information about its sustainability
characteristics presented to the public are mismatched.
Supervisory authorities in Switzerland and all over
the world are now taking steps to tackle such cases
for which the term greenwashing has been coined.
This study discusses greenwashing from a regulatory
perspective, highlighting the developments with regard
to Swiss and international supervisory authorities and
their approaches to defining and tackling greenwashing
risks. By analysing relevant supervisory guidelines and
definitions, the study maps similarities and differences
in the supervisors’ understanding of greenwashing
and elaborates on the challenges faced by financial
institutions in light of increasing greenwashing
risks and a variety of supervisory approaches.
Finally, the study presents possible ways and a frame-
work for financial institutions to prevent greenwashing
risks identified beforehand.
SSF & CSP, Swiss Sustainable Investment Market Study 2022.
1
2. Greenwashing and greenwishing

Over recent years there has been a plethora of new
sustainability regulations and legislative initiatives. This
green regulatory wave has been spearheaded by the
European legislator but has since spawned a global,
complex and quickly evolving regulatory landscape.
Driven by this regulatory tsunami and an evergrowing
investor demand for solutions towards sustainable
development, sustainability has found its way into the
core businesses of financial institutions which have
largely started to recognise sustainability not only as a
risk but as an opportunity.
Greenwashing can be a result of conscious action but
can also occur unintentionally when financial institutions
truly believe in ESG but fail to achieve the communicated,
intended impacts and results. This ‘greenwishing’
phenomenon is particularly prevalent where the rapid
growth of new regulations outpaces market players’
ability to comply. This means that greenwashing may
occur at all stages of the financial product lifecycle,
constituting a multi-dimensional risk which, to be
mitigated, needs to be tackled on multiple levels.

But the growing appetite for sustainable financial

solutions paired with the complexity of regulation comes
with the risk of financial institutions misleading clients
and investors about the (un)sustainable characteristics
of their financial products and services. This so-called
‘greenwashing’ comes in many different forms –
ranging from misleading fund names to the lack of
implementation of sustainable investment strategies or
ambiguity related to a firm’s sustainability commitments.

Greenwashing and greenwishing – a regulatory view | 5

3. Regulators are on the move

The risks related to greenwashing and

greenwishing have a detrimental effect
on the achievement of regulatory and
sustainable development targets. This
calls for regulators and supervisors to
take a closer look into greenwashing and
develop approaches towards mitigating
the related risks. The following chapter
gives an overview of current Swiss and
international developments in this regard.

EU, France, Germany, Switzerland, UK

USA

Hong Kong

Singapore

6 | Greenwashing and greenwishing – a regulatory view


Greenwashing defined by FINMA:
“Cases in which investors and
clients will be consciously or
unconsciously misled about the
sustainable characteristics of
financial products and services.”
– FINMA Guidance 05/2021
3.1 | Switzerland
The Swiss Federal Council aims to establish Switzerland
as an international leader in sustainable finance. To
make the Swiss financial centre a credible location for
investors seeking to contribute towards sustainable
development, the Swiss Federal Council is focusing
on climate transparency and investor protection.2
In this context, the Swiss Financial Market Supervisory
Authority (FINMA) protects investors from improper
business conduct and makes sure they aren’t
deceived with regard to the alleged sustainability
of financial products and services. To this end,
FINMA has released the Guidance 05/2021 on
preventing and combating greenwashing in relation
to sustainability-related collective investment
schemes.3 It establishes minimum requirements
in three focus areas for preventing and combating
greenwashing: product disclosures, organisational
requirements and at the point of sale. Based on its
guidance, FINMA has commenced ESG supervisory
inspections at several Swiss financial institutions.
In combination with the FINMA communication
to supervised entities on minimum transparency
requirements for fund documents, as well as the
self-regulation and guidelines established by
Swiss financial market associations, they form the
‘Swiss standard’ for tackling greenwashing.
2
Swiss Federal Council, press release 17 November 2021
https://www.sif.admin.ch/sif/en/home/dokumentation/medienmitteilun-
gen/medienmitteilung.msg-id-85925.html, 2021.
3
FINMA, Guidance 05/2021: Preventing and combating greenwashing, 2021.
Greenwashing and greenwishing – a regulatory view | 7

3.2 | EU
With its EU Action Plan on Sustainable Finance, the
European Commission (EC) aims to reorient capital
flows towards sustainable investment, in order to
achieve sustainable and inclusive growth and to create
transparency and longtermism in financial and economic
activity. This includes a variety of anti-greenwashing
and investor protection measures, like strengthening
sustainability disclosure and accounting rulemaking.
To effectively mitigate the risks related to greenwashing,
the EC asked the European Supervisory Authorities,
including the European Securities and Markets
Authority (ESMA), to provide their input on the matter.
As a consequence, greenwashing is currently one
of the key priorities of ESMA.4 When it comes to
tackling greenwashing, ESMA’s goal is to establish a
clear definition of the greenwashing phenomenon to
help coordinate and focus the EU-wide supervisory
efforts. To this end, ESMA has taken an initial
step to gain a shared understanding of what the
National Competent Authorities (NCAs) regard as
greenwashing. In a second step, ESMA will focus on
providing guidance to NCAs and market players in the
implementation of the sustainable finance regulation.
4
ESMA, Sustainable Finance Roadmap 2022-2024, 2022.
5
ESMA, Supervisory Briefing: Sustainability risks and disclosures in
the area of investment management, 2021.
8 | Greenwashing and greenwishing – a regulatory view
Greenwashing defined by EC:
“The practice of gaining an unfair
competitive advantage by recommending a
financial product as environmentally friendly
or sustainable, when in fact that financial
product does not meet basic environmental
or other sustainability-related standards.”
– Commission Delegated Regulation (EU) 2022/1288
A recent ESMA Supervisory Briefing5 from May
2022 aims to promote a common approach among
the NCAs towards increasing transparency for fund
investors and avoiding greenwashing. Although the
ESMA Supervisory Briefing is nonbinding and doesn't
constitute official policy, ESMA has established
three key harmonisation areas: supervision of fund
documentation and marketing materials, integration
of sustainability risks by AIFMs and UCITS managers
and regulatory interventions in case of breaches.
Greenwashing defined by ESMA:
“Market practices, both intentional and
unintentional, whereby the publicly
disclosed sustainability profile of an issuer
and the characteristics and/or objectives of
a financial instrument or a financial product
either by action or omission do not properly
reflect the underlying sustainability risks
and impacts associated to that issuer,
financial instrument or financial product.”
– ESMA Supervisory Briefing
 Greenwashing defined by BaFin:
3.3 | Germany
“Investment assets are being offered
to investors as sustainable or bear
In 2021, the German Federal Financial
reference to sustainability in their
Supervisory Authority (BaFin) drafted guidelines
on sustainable investment funds and published name, without actually pursuing a
them for consultation (Consultation 13/2021).6 corresponding investment policy.”
The guidelines were drafted as an addition to
the EU sustainable finance regulation and are – BaFin, Consultation 13/2021 (translated)
aimed at further enhancing ESG transparency and
preventing greenwashing. The guidance sets out
minimum standards in relation to asset allocation
and investment strategy in order for a fund to be
rightfully marketed as sustainable. Thus, BaFin
already went one step further than the EU to prevent
greenwashing. Although BaFin decided to put the
planned guidelines on hold, certain requirements
outlined in the draft guidelines will nonetheless be
plied by the supervisory authority.7

3.4 | France

Although it doesn’t provide a definition of

greenwashing as such, the French financial market
authority AMF declared that the development of
sustainability reporting minimum standards and
the protection of investors against greenwashing
are two of their current key priorities. In 2020, AMF
established the ‘AMF Doctrine’ (position DOC-
2020-03)8 defining minimum sustainable investment
criteria for products marketed as sustainable. Thus,
the AMF exceeds the requirements of the current
EU legislation in relation to greenwashing.

Action against greenwashing isn’t limited to AMF.

The French government passed the Climate and
Resilience Law including provisions that prohibit
corporate advertising and closely supervise
promotional practices based on misleading claims
regarding positive sustainability impact and/or
carbon neutrality across all industries. Such claims
may only be made if they’re substantiated in a
specified manner as laid out by the rules of the
Climate and Resilience Law.

6
BaFin, Konsultation 13/2021 - Richtlinie für nachhaltige Invest-
mentvermögen, 2021.
7
BaFin's Annual Press Conference, 3 May 2022
8
 AMF, Recommendation: Information to be provided by Collective
Investment Schemes Incorporating Non-Financial Approaches,
2020.

Greenwashing and greenwishing – a regulatory view | 9

 3.5 | UK
The UK Financial Conduct Authority (FCA) declared
to focus on building trust in the claims made by issuers
regarding the sustainability characteristics of green
and other ESG‑labelled financial instruments. To this
end, the FCA released its guiding principles 20219 on
how existing rules apply in the context of sustainable
investment funds – aligning the design, delivery,
monitoring and disclosure requirements of ESG funds
with the supervisor’s expectations.
At the same time, the Competition and Markets Authority
(CMA) responded to the increased greenwashing risks
in sustainable products and services by releasing
the guidance on environmental claims on goods and
services (Green Claims Code)10 in 2021.
9
FCA, Guidance: Authorised ESG & Sustain-
able Investment Funds: improving quality and
clarity, 2021.
10
CMA, Guidance on environmental claims on
goods and services, 2021.
10 | Greenwashing and greenwishing – a regulatory view
Green claims as defined by the CMA are claims showing
how a product, service, brand or business provides
a benefit or is less harmful to the environment. The
Green Claims Code establishes key principles that
green claims need to adhere to: (i) claims must be
truthful and accurate, (ii) claims must be clear and
unambiguous, (iii) claims mustn’t omit or hide important,
relevant information, (iv) comparisons must be fair and
meaningful, (v) claims must consider the full lifecycle
of the product or service and (iv) claims must be
substantiated.
Greenwashing defined by FCA:
“Marketing that portrays an
organisation’s products, activities
or policies as producing positive
environmental outcomes when this
is not the case.”
– FCA Discussion Paper DP18/8, N 4.7
Greenwashing defined by SEC:

“[…] funds and advisers marketing [ESG]

strategies may exaggerate their ESG practices
or the extent to which their investment products
or services take into account ESG factors.”

– SEC Proposed Amendments to Names Rule

3.6 | USA

In 2021, the U.S. Securities and Exchange Commission
(SEC) formed a new Climate and ESG Task Force. In line
with the increased focus and reliance on sustainability-
related disclosure and investments of investors, the
Task Force will solely focus on proactively tackling
ESG-related misconduct – in other words greenwashing.
The SEC Climate and ESG Task Force has started to
investigate renowned financial institutions and has
recently issued its first fine for misstatements and
omissions of ESG considerations.
Moreover, in May 2022, the SEC proposed two new sets
of rules to combat greenwashing: the amendment of
the Names Rule (‘Investment Company Names’)11 and a
new ESG Disclosure Rule (‘Environmental, Social, and
Governance Disclosures for Investment Advisers and
Investment Companies’).12 The former rule sets minimum
requirements aligning funds’ asset allocation with their
respective sustainable investment policies to ensure
the sustainable investment focus that’s claimed in the
name. This means that only funds with an ESG purpose
are permitted to call themselves accordingly. The latter
proposal stipulates new disclosure rules for funds and
advisers that claim to integrate ESG factors into their
investment products and services, aiming to provide
clearer and more consistent information for investors,
and to address the risk of greenwashing through
exaggeration or misrepresentation of ESG claims.

SEC, Proposed rule: Investment Company Names, 2022.

11

SEC, Proposed rule: Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance
12 

Investment Practices, 2022.

Greenwashing and greenwishing – a regulatory view | 11

 3.7 | Hong Kong

In June 2021, the Hong Kong Securities and

Futures Commission (SFC) published a circular
for management companies of SFC-authorised
ESG funds,13 which are funds that incorporate ESG
factors as their key investment focus and reflect this
in their investment objective and/or strategy. The
June 2021 Circular supersedes the previous 2019
Circular on Green or ESG funds. The focus of the
circular is to enhance disclosure standards of ESG
funds, including periodic assessment and reporting,
ongoing monitoring and additional guidance for
‘climate funds’. Besides enhancing the comparability
Greenwashing defined by SFC:
and transparency of ESG funds through additional
disclosure requirements, the circular also wants to
“Asset managers market themselves
enhance the visibility of these funds by maintaining a as ‘green’ or ‘sustainable’ but do
publicly accessible central database of all authorised not fully integrate these factors into
ESG funds, including UCITS ESG funds, on the
SFC’s website. The SFC included a definition of
the investment process.”
greenwashing in its Strategic Framework for Green
– Strategic Framework for Green Finance 2018
Finance 2018.14

13
SFC, Circular to management companies of SFC-authorized unit
trusts and mutual funds - ESG funds, 2021.
14
SFC, Strategic Framework for Green Finance, 2018.

Greenwashing defined by MAS:

“Greenwashing can occur at the firm
level and product level, such as the
overstatement or lack of clarity about
a firm’s sustainability commitments, or
lack of alignment between the product’s
stated sustainability objective versus
its actual investment allocations.”
– MAS Sustainability Report 2021-2022
3.8 | Singapore
Recently, the Monetary Authority of Singapore
(MAS) published a circular targeting the disclosure
and reporting of retail ESG funds to reduce
the risk of greenwashing.15 The disclosure and
reporting requirements introduced in MAS’ new
guidelines encompass disclosures on details of
funds’ investment focus and strategies, criteria
and metrics used to measure the attainment of the
ESG focus and to select investments, and risks and
limitations associated with the funds’ strategies.

Besides making the information on ESG funds

comparable and available through new disclosure
requirements, Singapore launched a blockchain-
powered ESG data platform ‘ESGpedia’ in May
2022. The platform provides a common access
point to sustainability certifications and verified
sustainability data to improve the management of
ESG financial products.

15
MAS, Circular: Disclosure and Reporting Guidelines for Retail
ESG Funds, 2022.

12 | Greenwashing and greenwishing – a regulatory view

4. Grasping the essence of greenwashing
To systematically identify differences and similarities in supervisory strategies combatting greenwashing
and protecting investors, this study includes a textual analysis of each authority’s definition of
greenwashing. Additionally, the issued regulatory documents targeting greenwashing were analysed
and compared with regard to potential greenwashing scenarios recognised by each supervisory body.

4.1 | Comparison of definitions

As a first step, all available definitions were dissected
into core semantic building blocks and, as a result, all
differences and commonalities between the definitions
of greenwashing were mapped using a matrix comprised
of the following building blocks (table 1):
• Intentionality: does the definition address the
deliberateness of greenwashing actions?
• Greenwashing behaviour: what does the definition
consider to be actual misconduct?

• Level of claim: does the greenwashing definition
relate to product or organisational aspects?
• Activities in scope: does the definition refer to
any particular point of the product’s lifecycle or
organisational activity?
• Greenwashing object: according to the definition,
what is being ‘greenwashed’, i.e. inaccurately
reflected or overstated?
• Unique greenwashing definition elements: does
the definition comprise any particular aspects that
aren’t mentioned explicitly by other supervisory
definitions?

Table 1: Comparison of greenwashing definitions

Definition
building FINMA EC ESMA BaFin FCA SEC MAS SFC
blocks

Product Product Product Product Product Product Product Product

Level of claim
Entity Entity Entity Entity Entity

n/a Product rec- Disclosure Product Marketing Marketing n/a Marketing

Activities in ommendation recommen-
scope and offering dation and
offering

Conscious n/a Intentional n/a n/a n/a n/a n/a

Intentionality and un- and uninten-
conscious tional

Misleads Recommends Inaccurately Offers Markets Exaggerates Overstates, Markets the

investors financial reflects investments products as lack of clarity, organisation
Greenwashing and clients products as sustainabil- as sustain- environmen- misaligns as sustain-
behaviour sustainable ity features able when tally positive able when
when they're (by action or they're not when it's not
not omission) they’re not

Product’s Product’s sus- Product’s/ Sustainable Environ- Sustainable Sustaiable Sustainable

sustain- tainability and issuer’s investment mental investment investment investment
Greenwashing
able environmental sustainabil- strategy/ outcomes strategy/ objectives, strategy/
object
character- friendliness ity risks and process process sustainability process
istics impacts commitments

n/a Refers to n/a Explicitly n/a n/a n/a n/a

greenwashing refers to
as a practice fund names
Unique
of gaining in the
elements
an unfair definition
competitive
advantage

Greenwashing and greenwishing – a regulatory view | 13

The comparison of definitions reveals that all
authorities share a common basic understanding
of greenwashing, as several core elements can be
found in all definitions. When diving deeper into these
components, however, varying specifications and focal
points can be identified, which reflects the complexity
and multifaceted nature of greenwashing and, to some
extent, diverging supervisory expectations on this topic.
All analysed supervisory authorities address the
levels of claim, the related activities in scope and the
greenwashing object in their definitions. In terms of
levels of claim, some authorities focus their definition
on greenwashing at product level, referring to financial
products and services, financial instruments or funds
specifically, whereas other authorities recognise the
multidimensional aspect of greenwashing by adding an
explicit organisational reference, for example, to entities
as a whole or organisations’ activities and policies.
Such variations in the definitions’ scope further
materialise in the comparison of activities mentioned in
relation to greenwashing, which vary from the general
term ‘marketing’ (of allegedly sustainable products,
strategies or the organisation itself) to more specific
actions like disclosures (of products’ supposed
sustainability features) and the recommendation
and offering of seemingly sustainable products.
Key questions to ask:
How does your institution currently
address and prevent greenwashing and
greenwishing?
Does your organisation have an anti-
greenwashing concept, including a
clear definition?
Do your anti-greenwashing measures
entail both product and organisational
aspects?
14 | Greenwashing and greenwishing – a regulatory view
So, greenwashing is generally seen as a mismatch
between reality on the one hand and what is
communicated, stated or offered to the outside world
on the other hand. This discrepancy is generated
through either vagueness, unclarity and omissions,
or exaggerations and overstatements, which results
in the misleading of clients and investors. Some
authorities note explicitly that this can be done
both on an intentional or unintentional basis.
When looking at the greenwashing object – in other
words what’s actually being concealed or exaggerated –
the focal points in supervisory authorities’ definitions
seem to vary quite strongly. Again, a few definitions
are formulated more broadly, referring to products’
overall environmental friendliness or sustainability
characteristics, while others are narrower by making
reference to products’ sustainability risks, (environmental)
impacts and objectives, the sustainable investment
strategy or an organisation’s commitments.
Although some unfair advantages for institutions that
result from these greenwashing activities – as a target of
intentional behaviour or as a byproduct of unintentional
behaviour – can be derived from these definitions,
one authority explicitly refers to greenwashing as the
‘practice of gaining an unfair competitive advantage’.
Which activities are you currently
focusing on? Are you maybe
prioritising a specific area, e.g.
marketing material, and neglecting
others, e.g. at the point of sale?
Do you include greenwashing
checks on both general sustainability
claims and individual aspects like
products’ sustainability risks and
investment strategy?
Are you taking measures to rule out
the possibility that you’re gaining
unfair benefits – intentionally
or unintentionally – from your
sustainability claims and activities?
4.2 | Comparison of greenwashing scenarios

The analysed definitions often come with potential

greenwashing examples and scenarios provided in relevant
guidelines and official publications from the authorities. All
these greenwashing scenarios, ranging from misleading fund
names to confusing disclosure methods, have been collected
and mapped to each authority to reveal common patterns and
focus areas (table 2).16

Table 2: Comparison of greenwashing scenarios

Greenwashing scenarios FINMA ESMA BaFin AMF FCA SEC MAS SFC

Misleading fund names

(e.g. SFC: primary investments and/or
strategy don’t reflect the particular ESG
(•) • • • • • • •
focus of the fund name)

Lack of implementation
(e.g. FCA: fund isn’t managed
consistently with the objectives and
• • •
policy stated in the prospectus)

Poor asset allocation

(e.g. BaFin: fund must invest at least • • • • • • •
75% in sustainable assets)

Weak investment strategy

(e.g. ESMA: funds applying 'non- • • • • • •
binding' exclusion strategies)

Insufficient information in fund

documents
(e.g. MAS: missing disclosure regarding • • • • • • • •
the fund's ESG focus, sustainable
investing strategy and associated risks)

Confusing disclosure style

(e.g. ESMA: use of boilerplate language • • • • • (•) (•)
with complex legal disclaimers)

Inadequate governance
(e.g. FINMA: inadequate organisational • • • •
structure)

Neglection of clients’ sustainable

preferences
(e.g. FINMA: omission of sustainability
•
considerations in the advisory process)

Low ESG data coverage and

due diligence
(e.g. AMF: non-financial analysis, • • •
indicator or rating coverage rate must
be higher than 90%)

16
It should be noted, that if an authority doesn’t explicitly address a certain greenwashing scenario within the analysed guidelines, this scenario might still
account for greenwashing within this jurisdiction.

Greenwashing and greenwishing – a regulatory view | 15

The analysis of greenwashing scenarios shows that all
authorities are applying high scrutiny on fund names and
information in fund documents, including the manner in
which disclosures are made. Fund names in themselves
are widely used to convey the consideration of ESG
characteristics – correspondingly, all authorities pay
attention to misleading fund names, e.g. in case fund
names convey an ESG focus which isn’t reflected by the
fund’s primary investments and/or strategy. In addition
to fund names, all authorities recognise greenwashing
risks resulting from the insufficient disclosure of ESG
information and a confusing disclosure style within fund
documents, for example, by making excessive use of
cross-references. As a result, staying up to date with
international developments in sustainability disclosure
and reporting regulations, fund marketing rules and
corresponding supervisory implementation is a key
concern to mitigating greenwashing risks for financial
institutions.
Another focus area is the investment strategy and
the product’s asset allocation in particular. Several
authorities establish minimum standards in relation to
ESG investment strategies, especially when it comes to
basic exclusions, which are often deemed insufficient,
and asset allocations of ESG funds, which may contain
specific minimum thresholds that are unique to the
respective supervisor. The German BaFin, for example,
expects ESG funds to invest at least 75% in sustainable
assets, while the amendments proposed by the U.S.
17
FCA, ESG integration in UK capital markets, 2022.
16 | Greenwashing and greenwishing – a regulatory view
SEC expect ESG funds to invest at least 80% in the
investments suggested by the fund name. As a result,
financial institutions need to stand poised to implement
increasingly higher – and geographically varying –
standards in relation to their investment strategy and the
corresponding asset allocation.
Moreover, authorities emphasise the lack of
implementation and inadequate governance structures
in general as potential greenwashing scenarios. Fewer
authorities explicitly refer to clients’ sustainability
preferences not being properly considered in the client
advisory process as well as low ESG data coverage and
assessment, and, for example, set a minimum rating
coverage of invested assets. In relation to ESG data
coverage and general ESG data regulation, supervisory
developments are expected to intensify, particularly in
the EU and the UK.17
While ESMA, as mandated by the EC, seeks to
harmonise the NCAs towards supervisory convergence
on the EU level, it’s yet to be seen whether supervisory
alignment in relation to greenwashing will be pursued
by authorities on a global level. Though the results show
a common supervisory focus on fund names and fund
documents, financial institutions are facing diverging
supervisory developments in many other aspects and
so face increased greenwashing risks in cross-border
contexts.
Greenwashing and greenwishing – a regulatory view | 17
5. Greenwashing risks and challenges
for financial institutions
Trust in the efficiency and integrity of financial markets
is a key driver of investor participation in the market.
Greenwashing and greenwishing infiltrate the market
with imperfect sustainability information and falsely
differentiated ESG products – causing market distortions.
18 | Greenwashing and greenwishing – a regulatory view
These market distortions bring about negative
consequences for financial institutions on multiple levels.
As investors are at risk of being misled, greenwashing
may undermine the investors’ trust in the financial market
and its capacity to channel their capital into sustainable
investments, leading to financial resources being
wrongfully allocated to non-sustainable ventures.
Greenwashing further challenges financial institutions in
that it can materialise into financial risks, as the green
regulatory tsunami increases legal and reputational
risks related to greenwashing. These risks are amplified
in cases of cross-border activities, as institutions need
to simultaneously comply with varying national and
international regulations aiming at more transparency
and less greenwashing. As our findings show, this is
further complicated by varying supervisory approaches
and a lack of harmonisation among authorities.
While ESMA is launching efforts towards supervisory
convergence, Swiss financial institutions in particular
will need to keep a close eye on current supervisory
developments – especially as the market for sustainable
financial products is expected to keep growing.18
18
SSF & CSP, Swiss Sustainable Investment Market Study 2022.
6. Preventing and managing
greenwashing risks

The growing greenwashing – and greenwishing –

risk needs to be adequately managed by financial
institutions. These risks need to be identified, managed Example of key questions to be
and monitored continuously across all relevant functions. addressed within the regular
monitoring:
By way of example, a dedicated internal function
should be tasked with mitigating potential sustainability
underperformance and greenwashing risk based on Are the defined sustainability
a defined sustainability monitoring framework. On a indicators measured and
product level, it should be monitored whether all relevant considered in the investment
ESG aspects are addressed sufficiently within the
process on a regular basis?
investment process, including sustainability risks and
the adverse impact on ESG factors. Specifically, for
Which ESG data is effectively
ESG products, appropriate checks based on defined
sustainability indicators should ensure that the product taken into consideration within
is achieving the sustainability goals of the ESG strategy, the security selection?
also considering communications towards the investor
(e.g. legal documents, marketing, website). Therefore, Is the ESG strategy effectively
it is necessary to carry out in-depth analysis of the implemented and how?
portfolio and have appropriate controls.

Greenwashing and greenwishing – a regulatory view | 19

PwC Greenwashing Framework

No matter the role which oversees the prevention and
management of greenwashing risk, an organisation
should have in place a solid anti-greenwashing concept
that addresses all the relevant aspects highlighted in this
study. Based on our regulatory and market expertise,
we at PwC Switzerland have developed a framework to
analyse greenwashing risks and evaluate ESG financial
products accordingly. It consists of four pillars, which
should be integrated into a greenwashing framework:
product elements, disclosure, data and ratings as well
as investment strategies. In our study ‘Greening your
financial products’, we evaluated 220 ESG funds against
this framework. When mapping the study findings with
the identified greenwashing scenarios of the supervisory
authorities outlined in chapter 4.2, it can be seen that
many ESG funds are currently at risk of greenwashing
(figure 1).

Figure 1: PwC Greenwashing Framework

PwC Framework against Greenwashing

Regulatory landscape Market practice Study findings

Quality, credibility, impact

Product elements Disclosure Data and ratings Investment strategies

• Term ‘ESG’ only
found in ‘light green’
fund names in the
sample
• Term ‘impact’ is
solely found in ‘dark
Study findings19 green’ fund names in
the sample
• Similar investment
strategies between
light and dark green
products
• Often too general,
vague and superficial
disclosures
• Unstructured and
difficult to find within
the relevant fund
documents
• Binding ESG indica-
tors (KPIs) such as
carbon footprint,
SBTs, temperature
pad or scope 1-3 are
missing
• Almost all financial
institutions rely on
external sustainability
data, mostly
from MSCI and
Sustainalytics
• Traceability is
questionable as
the data providers
are often not
disclosed nor ade-
quately checked or
challenged
• Inconsistencies
regarding the
meaning of different
investment strategies
• Questionable impact,
as in most cases an
exclusion strategy is
used, low thresholds
are set, or no
minimum proportion
of sustainable asset
allocation is provided

Misleading fund Confusing disclosure Low ESG data Poor asset allocation
names style coverage e.g. BaFin: fund must
e.g. SFC: primary e.g. ESMA: use of e.g. AMF: non-financial invest at least 75% in
investments and/or boilerplate language analysis, indicator or sustainable assets
strategy don’t reflect the with complex legal rating coverage rate
Greenwashing particular ESG focus of disclaimers must be higher than
risk according the fund name 90%
to supervisory
authorities Lack of Insufficient Low ESG data due Weak investment
(examples) implementation information diligence strategy
e.g. FCA: fund isn’t e.g. MAS: missing e.g. FINMA: inadequate e.g. ESMA: funds
managed consistently disclosure regarding assessment and applying 'non-binding'
with the objectives and the fund's ESG focus, monitoring of the data exclusion strategies
policy stated in the sustainable investing providers
prospectus strategy and risks

19
For further information on the study, please visit: https://www.pwc.ch/en/insights/fs/greening-your-financial-products.html.

20 | Greenwashing and greenwishing – a regulatory view

7. Conclusion and outlook
Greenwashing is a complex, multi-dimensional
topic, which poses severe risks for investors and
financial institutions alike. It may not only translate
into legal, reputational and, ultimately, financial risk
for financial institutions, but also threatens investor
trust and financial market efficiency.
With the aim of mitigating these risks, regulators in
different parts of the world have become active by
developing supervisory guidelines and approaches to
tackle greenwashing. But as this shows, the many and
somewhat diverging supervisory approaches create
additional layers of complexity – particularly for financial
institutions that are structured and perform services
across borders. As a result, financial institutions should
carefully analyse the relevant authorities’ definitions,
guidelines and approaches to develop a holistic anti-
greenwashing framework. They should also make sure
that sufficient organisational structures and processes
20
IOSCO, Call for oversight of ESG Ratings and Data Product Providers, 2021.
are in place to combat greenwashing at different levels,
which may entail the creation of dedicated roles and
responsibilities. At the same time, educating clients on
sustainable finance also helps to further protect them
against fraud and greenwashing.
As the sustainable financial market is expected to
continue its growth trajectory, corresponding supervisory
and regulatory developments are expected to follow suit.
Future focal points may include minimum standards for
the quality and comparability of ESG data – international
standard setters, like the International Organization of
Securities Commissions (IOSCO), as well as national
authorities are increasingly becoming aware of risks
related to the rise of available ESG data.20 To ensure
ongoing compliance, financial institutions therefore
need to continue monitoring national and international
regulatory developments on greenwashing.
Greenwashing and greenwishing – a regulatory view | 21
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22 | Greenwashing and greenwishing – a regulatory view

Contacts

Dr Antonios Koumbarakis Sofia Jaccard

Head Sustainability & Strategic Regulatory Sustainability & Strategic Regulatory Manager
PwC Switzerland PwC Switzerland
antonios.koumbarakis@pwc.ch sofia.jaccard@pwc.ch

Dr. iur. Guenther Dobrauz Jean-Sebastien Lassonde

Leader PwC Legal Switzerland Swiss Leader Asset & Wealth Management
PwC Switzerland PwC Switzerland
guenther.dobrauz@pwc.ch jean.sebastien.lassonde@pwc.ch

Marc Lehmann Christophe Bourgoin

Operational Excellence & ESG Investor Reporting / Capital Markets &
Transformation Leader Accounting Advisory Services
PwC Switzerland PwC Switzerland
marc.lehmann@pwc.ch christophe.d.bourgoin@pwc.ch

PwC, Birchstrasse 160, 8050 Zurich, +41 58 792 44 00

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