ESG and Sustainable Investments: Ratings and the Law

Investors who want to know whether their investments are in line with their values soon come across three letters: ESG. What is behind them, and are companies with strong ESG ratings more successful?

ESG stands for environmental, social and governance. Rating agencies, index providers and wealth managers use these three criteria to assess how a company deals with emissions and resources, with its employees and suppliers, and with oversight and remuneration at the top of the company.

The most important facts at a glance

• ESG stands for Environment, Social, Governance: the three pillars of sustainable corporate governance
• Companies of public interest, such as listed companies, have reported on non-financial matters since the 2023 financial year if they have at least 500 full-time equivalent positions and exceed either a balance sheet total of CHF 20 million or turnover of CHF 40 million
• A meta-study covering more than 2,000 individual studies (Friede, Busch and Bassen, 2015) finds no negative relationship between ESG criteria and corporate performance in around 90 percent of cases; the large majority of studies report positive findings
• Anti-greenwashing rules have applied since 2025: climate claims must be substantiated
• Three common approaches: exclusion criteria, best-in-class and impact investing

What does ESG mean?

• Environmental includes climate protection, energy efficiency and resource conservation. Companies are assessed according to their CO2 footprint and environmental management.
• Social concerns working conditions, human rights and social commitment. This includes fair wages and diversity.
• Governance evaluates corporate management. The focus is on transparency, ethics and compliance.

ESG rating agencies such as MSCI rate companies from AAA (best rating) to CCC (worst rating). To do so, they evaluate a large number of indicators, from emissions data to information on corporate governance. Index providers use such ratings to select or weight securities for ESG indices.

In ESG integration, sustainability criteria are considered alongside financial indicators when a company is analysed.

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What applies in Switzerland?

In 2022, a duty to report on non-financial matters entered into force with the revision of the Code of Obligations (Art. 964a ff. CO). It applies to companies of public interest, such as listed companies, that together with the undertakings they control have at least 500 full-time equivalent positions in two successive financial years and exceed either a balance sheet total of CHF 20 million or turnover of CHF 40 million. The first report covered the 2023 financial year.

These companies therefore disclose their non-financial information every year.

• Planned legislation: In April 2026 the Federal Council opened a consultation on a federal act on sustainable corporate governance, as a counter-proposal to the popular initiative on responsible large companies. It would impose due diligence duties on around 30 large companies and is modelled on the simplified EU rules (Omnibus Directive): sustainability reporting would apply to around 100 companies instead of around 200 today, and those reports would be externally audited. As of the end of September 2026, the Federal Council had not yet submitted its dispatch (the bill with its explanatory report) to Parliament.
• Anti-greenwashing: Since 1 January 2025, it has been unfair under the Unfair Competition Act (UCA) to make claims about the climate impact of one’s company or its goods or services that cannot be substantiated by objective and verifiable evidence.

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Sustainability in client conversations

Alongside risk capacity, risk appetite and investment horizon, client conversations can also cover sustainability preferences.

Which sustainability issues matter to the client? Climate protection, social justice or business ethics? Depending on the answer, a different approach comes to the fore. Three are common:

1. Exclusion criteria: Certain sectors or companies are avoided
2. Best-in-class: the most sustainable companies in each sector are preferred
3. Impact investing: Targeted investments in solutions for social problems

ESG product landscape: from ETFs to pillar 3a

ESG ETFs usually track a sustainability index that an index provider derives from a conventional index. How strict the selection is depends on the index methodology.

• Understand the differences: Some ETFs exclude problematic sectors, others weight ESG leaders more heavily. The tracking difference to the benchmark varies depending on the ESG approach.
• Making pillar 3a sustainable: Several banks and pension foundations offer 3a solutions that take ESG criteria into account.
• Make fund costs transparent: Some ESG funds charge higher fees than comparable conventional funds. Comparing costs is therefore part of every product choice.
• Alternative investments: Private markets, green bonds and impact funds expand the ESG spectrum for wealthy clients, often with high minimum investments.

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Performance and risks

The meta-analysis by Friede, Busch and Bassen (2015) covers more than 2,000 individual studies: around 90 percent of them find no negative relationship between ESG criteria and corporate performance, and the large majority report positive findings.

Nevertheless, there are risks:

• ESG ratings from different agencies sometimes differ considerably. A rating is therefore only meaningful together with the agency and its methodology.
• Liquidity risks exist for niche products. Impact investments in emerging markets or new technologies can be less liquid.

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Conclusion

In Switzerland, sustainability has become a legal matter. Companies of public interest above a certain size report on non-financial matters, and since 2025 climate claims must be substantiated. Anyone who supports clients with ESG investments needs a working knowledge of ratings, product approaches and costs.

ESG ratings from different agencies often diverge, and some products cost more than conventional ones. Both should be discussed openly with clients.

Frequently asked questions about ESG investments

What is the difference between exclusion, best-in-class and impact investing?

With exclusion, certain sectors or companies are removed from the investment universe altogether. Best-in-class allows all sectors and selects the companies with the best ESG ratings in each. Impact investing goes further: it invests specifically in companies or projects whose activities are intended to have a measurable environmental or social impact.

Which companies in Switzerland have to report on sustainability?

Companies of public interest above a certain size, such as listed companies, have to report. The test is two successive financial years with at least 500 full-time equivalent positions and a balance sheet total above CHF 20 million or turnover above CHF 40 million, including controlled undertakings (Art. 964a CO). The report is published every year and covers environmental, social and employee matters, human rights and anti-corruption, starting with the 2023 financial year.

What rules apply in Switzerland to companies’ climate claims?

Since 1 January 2025, the Unfair Competition Act has treated statements about the climate impact of a company or its goods and services as unfair if they are not based on objective and verifiable evidence (Art. 3 para. 1 let. x UCA). This covers claims such as “climate neutral” as well as statements on emissions.

Do companies with strong ESG ratings perform better?

Most studies find no disadvantage. Of the more than 2,000 individual studies reviewed by Friede, Busch and Bassen (2015), around 90 percent find no negative relationship between ESG criteria and corporate performance, and the large majority report positive findings. What is measured is the performance of the companies. That says nothing about the return of an individual fund.