Climate lawsuits, greenwashing and bluewashing: Recent ESG lawsuits and proceedings in Switzerland - implications for management and boards

1. Greenwashing

1.1 Lawsuits against companies

Lawsuits relating to greenwashing or climate washing (more information here) are in vogue. These cases involve the misrepresentation by governments or companies of their contributions to the transition to a low-carbon future. Cases may involve misleading claims that products or services are more climate friendly than they actually are. Increasingly, these cases involve claims about terms such as "net zero", "climate neutral" and "deforestation free". They may also concern the extent to which misinformation campaigns or failure to disclose known risks have contributed to the damage caused by climate change. Recent examples: Verbraucherzentrale Baden-Württemberg v. DWS; Church of England Pensions Board and others v. Volkswagen AG; KlimaAllianz Switzerland vs. FIFA. It is striking that the plaintiffs are all NGOs.

The case of the KlimaAllianz vs. FIFA is not a court case, but a complaint procedure before the Swiss Fairness for Commission. The Climate Alliance was supported by the association Avocat-e-s pour le Climat. The Swiss Fairness Commission (SLK) is the neutral, independent institution of the communications industry for the purpose of advertising self-regulation, i.e., a self-regulating organisation. The Fairness Commission upheld a complaint against FIFA because FIFA for describing the 2022 World Cup in Qatar as climate-neutral ("CO2-neutral World Cup") but failing to prove in the proceedings that this was actually the case, despite the fact that FIFA bears the burden of proof for its statements ("Les auteurs de la publicité doivent être en mesure d'apporter la preuve de leurs assertions publicitaires"). In addition, it remained unclear whether the compensation measures complied with Swiss standards (e.g. complete and sustainable removal of CO2 from the atmosphere) (En outre, la question demeure peu claire de savoir si les mesures compensatoires sont conformes aux standards suisses (p. ex. retrait intégral et durable du CO2 de l'atmosphère). The Fairness Commission has set high standards for advertising climate neutrality. Factual statements must be legally correct and must not be misleading (Art. 3 para. 1 lit. b UWG). A strict standard must be applied when it comes to proving the accuracy of environmental claims. The SLK complies with the relevant guidelines of the Marketing and Advertising Code of the International Chamber of Commerce ICC. (Chapter D of the ICC Code: Environmental Advertising and Marketing, see here).

The Oberengadiner Bergbahnen have also been accused of greenwashing. Since the 2022/2023 winter season, all diesel vehicles, all construction machines, the 36 snow groomers and the 65 service vehicles in the ski areas of the Upper Engadine mountain railways have been running on GTL (gas-to-liquids) fuel Alpine. The Engadin St. Moritz Mountains AG claims that this is CO2-neutral and thus enables CO2-neutral snow sports. The Consumer Protection Foundation became aware of the case and filed a complaint with the State Secretariat for Economic Affairs (SECO) against Engadin St. Moritz Mountains AG for unfair business practices. In response, the State Secretariat for Economic Affairs (SECO) sent a letter to operator Engadin St. Moritz Mountains AG reprimanding the company for advertising "climate-neutral" snow sports last winter. Seco considered the promise to be unfair and requested the operator in a letter to change the statement (source: www.nau.ch; SRF).

1.2 Greenwashing in the financial sector

Sustainable financial products are in vogue in the financial industry. A market survey by Swiss Sustainable Finance (SSF) shows that the volume of green investments has grown by 30% in the last two years. The temptation for financial services providers to make their financial products look greener than they are is accordingly great. The Swiss Financial Market Supervisory Authority (FINMA) has therefore had the issue of greenwashing on its radar for some time and has published a guidance on the prevention and combating of greenwashing in 2021, which focuses on the fund sector as well as on behavioural obligations at the point of sale. The Swiss Financial Market Supervisory Authority (FINMA) defines greenwashing as the fact of misleading clients and investors about characteristics of financial products and services with regards to being "green", "sustainable" and "ESG" (FINMA Guidance 05/2021 on preventing and combating greenwashing). Investors and clients must not be misled about the sustainable characteristics of financial products. In the absence of specific legislation on the sustainability of financial products and services, FINMA only intervenes in obvious cases of deception, but then uses all available supervisory instruments (on-site inspections at institutions, fund analyses or supervisory discussions). FINMA also takes into account information received from the public or the media.

In addition, FINMA has introduced disclosure obligations for large banks and insurance companies (supervisory categories 1 and 2) based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

1.3 Lawsuits against the state

But the state itself is also in the crosshairs. The case of KlimaSeniorinnen vs. Switzerland is pending before the European Court of Human Rights (ECHR). The hearing took place in May 2023. A decision is expected soon. The core issue is whether the state is obliged to implement ambitious climate targets in order to protect human rights. With the case Careme vs. France and Duarte Agostinho et. al. vs. Portugal are similar cases to be judged by the European Court of Human Rights (ECHR). The ECHR has already ruled on some 300 environmental cases. Although the right to a healthy environment is not explicitly protected under the Human Rights Convention, the ECHR has ruled that state failure to protect citizens from environmental damage caused by pollution can constitute a violation of protected rights, in particular the right to life and the right to private and family life Family life (Articles 2 and 8 of the European Convention on Human Rights). A major hurdle for plaintiffs is the need to establish standing, i.e. to meet the strict requirements to prove "victim status". If the plaintiffs are upheld, these rulings could be groundbreaking for future jurisprudence on the human rights obligations of states in the context of climate change in Europe.

2. Self-regulation

In order to counteract greenwashing in the financial sector, the Asset Management Association Switzerland (AMAS) has taken the initiative to further strengthen "sustainable finance" and repair the damage to its image caused by greenwashing. Against this background, AMAS has developed the “Self-regulation on transparency and disclosure for sustainability-related collective assets"as a binding requirement for the organisation of financial institutions. The provisions, which will come into force on 30 September 2023 complementary the “self-regulation on sustainability in client advisory services” introduced by the Swiss Bankers Association (SBA) at the institutional and product level.

As a further contribution to the promotion of sustainable finance in the Swiss financial centre, the Swiss Bankers Association (SBA) has defined two additional sustainability-related requirements for its members in the areas of investment advice, asset management and mortgage advice. The new “Guidelines for the financial service providers on the integration of ESG-preferences and ESG risks into investment advice and portfolio management", which are based on the FIDLEG, ensure the inclusion of ESG preferences with a corresponding obligation to provide information, documentation and accountability. The "Guidelines for mortgage providers on the promotion energy efficiency" also require mortgage providers to discuss with their clients the long-term value retention and energy efficiency of the building to be financed when advising them on real estate financing.

In addition, the Federal Council launched the "Swiss Climate Scores" with the aim of strengthening the credibility and climate transparency of the Swiss financial centre. These provide both institutional and private investors with comparable and meaningful information on the extent to which financial investments are compatible with international climate goals. The use of the Swiss Climate Scores is voluntary and is intended to make investment decisions more efficient.

3. Regulation ante portas?

In Switzerland, there is no specific prohibition on greenwashing, neither by law nor by ordinance. As shown above, greenwashing may violate the prohibition of deception or misleading statements in the UCA (Art. 3 para. 1 lit. b UCA; Unfair Competition Act).

In Switzerland, however, there are no hard laws specifically designed to prevent greenwashing. A task force has been set up consisting of the working group led by the Federal Department of Finance (FDF) to examine the best way to implement the Federal Council's position on the prevention of greenwashing. In addition to representatives from the FDF, the working group will be supported by individuals from the Federal Department of the Environment, Transport, Energy and Communications (DETEC), the Federal Department of Economic Affairs, Education and Research (EAER), the Swiss Financial Market Supervisory Authority (FINMA), industry and non-governmental organisations, with the aim of developing proposals to prevent greenwashing by the end of September 2023.

In contrast to Switzerland, the EU has introduced various regulations that are directly or indirectly relevant to greenwashing:

• EU Taxonomy Regulation (classification system that regulates which activities should be considered environmentally sustainable).
• Disclosure Regulation (SFDR; transparency regarding ESG information at institution and product level in the financial sector: sustainability risks and Principal Adverse Impacts (PAI); in Switzerland, the issuance of dark green funds within the meaning of Article 9 SFDR is popular)
• EU Reference Values Regulation (EU Paris-aligned Benchmark and EU Climate Transition Benchmark)
• Corporate Sustainability Reporting Directive (CSRD; reporting requirements for large and listed companies from 01.01.2024; KPIs for comparability and measurability of ESG criteria)
• Energy Performance of Buildings Directive (EPBD; minimum requirements for the energy performance of buildings; renewable energy sources and e-mobility; inspection of heating and air conditioning systems).
  

4. Bluewashing

Ethical behaviour is an important factor in a company’s reputation. Moral reputation is measured by their approach to corporate social responsibility (CSR). A commitment to making the world a better place does not come for free. Some companies are tempted to bluewash themselves and their products in order to save resources and at the same time improve their public image.

Bluewashing is generally understood as a marketing strategy used by companies to clean up or polish up their image. They advertise with supposedly ethical and social campaigns and messages - but most of the time these are just empty words. It is a mere PR strategy, that the consumer portal VIS Bayern described as a "moral red herring regarding the social commitment" of a company.

The term “bluewashing” was coined in reference to the United Nations’ blue logo, which members of the United Nations Global Compact (UNGC) are allowed to use to demonstrate social/sustainable corporate governance, even if they do not act in accordance with the principles of the UNGC's.

5. What are the consequences for management and the board of directors?

Greenwashing and bluewashing pose significant risks to any company. We therefore recommend that the board and senior management, as part of their overall supervision duty, ensure that:

• greenwashing and bluewashing are detected as a risks, especially for companies in the financial sector (risk management; internal control system)
• the necessary knowledge is built up internally or externally (ESG know-how)
• the marketing and communications departments are aware of the riks of greenwashing
• communicate consistently with the company's sustainability policy and approaches, sustainability aspects of the company itself and of its products and services, as well as the relevant legal documents (advertising, branding, PR, prospectuses, fund regulations, articles of association, basic information, sustainability reports, contracts with data suppliers, contractual delegation of tasks, etc.).
• only recognised climate labels are used
• the standards of self-regulatory organisations are respected
• a critical legal assessment is carried out and documented before marketing campaigns with green or environmentally friendly arguments are launched
• internal or external control mechanisms are in place for the market presence (use of forensic technologies; whistle-blowing)
• the supply chain is verifiably audited (third party ESG risk; supplier due diligence)
• appropriate policies are in place to define responsibilities
• the issue of ESG compliance is integrated into the compliance management system (cf. International Standards for Good Governance; ISO 3700:2021)
• insurance cover is in place (D&O, etc.).