Greenwashing is more than a reputational risk. It's a market failure.

A recent paper published by researchers at the University of Zurich puts hard numbers behind something many in sustainable finance have long suspected. Greenwashing does not just distort perception. It degrades the information environment that markets depend on. And that degradation carries a cost.

The authors introduce the concept of the Social Cost of Greenwashing (SCG) and estimate it exceeds 2 percent of global GDP each year. This cost includes wasted capital, misdirected investments, and the breakdown of public trust in sustainability claims. When companies spend to shape perception rather than improve performance, the market loses its ability to distinguish between real and false signals. Over time, this weakens the feedback loop that allocates capital efficiently.

One of the most striking conclusions is that once trust and information quality fall below a certain threshold, they become very difficult to rebuild. Short-term greenwashing can cause long-term damage. The costs of repairing the market's information infrastructure are significantly higher than the costs of protecting it in the first place. In other words, prevention is cheaper than cure.

The paper also challenges some of the assumptions we take for granted. For example, it finds that more competition between firms is not always better. In the absence of credible standards, multiple firms competing to appear sustainable can lead to what the authors call an "information arms race" — escalating spending on influence campaigns without improving actual performance. The result is more noise, more confusion, and a faster erosion of trust.

At SWISOX, we see this research as an important validation of the path we are taking.

Our mission is to build a marketplace designed specifically for sustainable companies. Not all companies. Not every strategy. Just those that meet clearly defined, transparent, and verifiable criteria. The bar is high by design. If the market is serious about sustainable finance, it must be able to differentiate real sustainability from performance by association or branding.

We rely on taxonomies to do this work. Not one fixed taxonomy, but a growing ecosystem of science-based classification systems that allow us to assess whether a company's revenue model is truly aligned with environmental and social goals. These taxonomies provide the structure needed to evaluate companies based on objective evidence, not subjective marketing. They give us a foundation for data integrity — and data integrity is what gives the market meaning.

SWISOX is not trying to fix everything at once. But we are starting with one problem that can no longer be ignored. If we continue to rely on financial systems where greenwashing is tolerated or even rewarded, capital will keep flowing in the wrong direction. Worse, retail and institutional investors will lose trust not just in sustainability claims but in the broader promise of finance as a tool for transition.

Creating a dedicated space for verified sustainable companies is one way to counter this drift. It allows investors to engage with credible companies without sorting through mixed signals. It gives fund managers a clear source of sustainable assets. And it creates pressure for companies outside the platform to either step up or step aside.

This new research makes it clear that the stakes are high. Greenwashing is not a side issue. It is a structural threat to how sustainable markets function. For those building the next generation of financial infrastructure, the message is simple: trust must be designed in from the start.

We will continue sharing key research and findings as part of our effort to make sustainable finance more transparent, more honest, and more effective.