20 March 2024

ESG: Pitfalls regarding Climate Transition Plans from a Swiss legal perspective

  • Articles
  • Legal
  • Governance / ESG

Swiss law requires big companies as of 2024 (reporting year 2025), to follow the recommendations of the Taskforce for Climate-related Financial Disclosures (TCFD) including climate transiton plans.

1. Introduction:

As outlined in our previous article (ESG: From Voluntary to Mandatory Climate Transition Plans in Switzerland and the EU), Switzerland committed to achieving Net Zero emissions by the year 2050 and issued reduction interim goals in the Climate and Innovation Law (art. 3 Abs. 3 CIL) and specific reference values for various industry sectors (art. 4 CIL).

The CIL aims to reduce overall Greenhouse Gas (GHG) emissions by 75% by 2040 and by 100% by 2050 (relative to the year 1990). To achieve this goal, the CIL sets out specific targets for the building sector (82% by 2040; 100% by 2050), the transport sector (57% by 2040; 100% by 2050), and the industrial sector (50% by 2040; 90% by 2050). These targets include both direct and indirect emissions. Scope 1 covers direct emissions from owned or controlled sources. Scope 2 covers indirect emissions from the purchase and use of electricity, steam, heating and cooling. By using the energy, an organization is indirectly responsible for the release of these emissions. Scope 3 includes all other indirect emissions that occur in the upstream and downstream activities of an organization.

The CIL clearly states (art. 5 CIL) that all companies (regardless of size) must achieve Net Zero emissions by 2050!

These ambitious targets align with global efforts to combat climate change and transition to a more sustainable future (“Paris Agreement”).

2. Legal Requirements for Swiss Companies to Disclose a Transition Plan:

Art. 964a-c of the Swiss Code of Obligations (CO) relate to reporting obligations for environmental, social, and governance (ESG) matters for large Swiss companies and apply from calendar year 2023 with reporting requirement for the first time in 2024.

In addition, as of 2024 onwards (report in 2025 about the year 2024), such companies need to report on climate related matters (Ordinance on the Reporting of Climate Matters (ORCM)).

According to art. 2 para 1 ORCM, it is assumed that companies comply with their climate-based reporting obligations if they follow the recommendations of the Taskforce for Climate-related Financial Disclosures (TCFD) (June 2017 version) and its Annex “Implementing the Recommendations of the Taks Force on Climate-related Financial Disclosures” (October 2021 version).

Art. 3 para 1 ORCM lists the minimum topics to be covered by the report: Governance, Strategy, Risk Management and Metrics and Targets (for more details see below). Part of Art. 3 para 1 lit. b (Strategy) requires a company to include a climate transition plan that is “comparable with the Swiss climate goals” (art. 3 para 3 lit. a CIL).

Climate transition plans (CPT) are a key to demonstrate and report to stakeholders how a company plans to achieve the climate goals set out in the Paris Agreement and the CIL. CPTs address and reduce the transition risks that represent the primary climate risks for many companies. They are therefore a mandatory component of a climate report and describe the planned path to transitioning to a low-carbon economy.


3. What is a Climate Transition Plan (CTP)?

A CTP is an action plan of a company to reduce GHG emissions to net zero by 2050 at the latest. A CTP must be consistent with the Paris Climate Agreement and contribute to limiting global warming to 1.5 degrees Celsius and the Swiss climate goals (see also art. 3 para 3 CIL).


For a CTP to be credible, it must be clear, targeted, time-bound, science-based, accountable and comparable.


Furthermore, it should be compatible with nature goals such as the “Kumming-Montreal Global Biodiversity Framework” or the “Taskforce on Nature-related Financial Disclosures (TNFD)” (see also our article: ESG: Ready for the Next Level of Disclosure? TNFD ante portas!).


A CTP must be a part of, and aligned with, an organization’s broader strategy for addressing climate-related risks and opportunities.


The EU Corporate Sustainability Reporting Directive (CSRD) also provides a definition of climate transition plans. According to the European Sustainability Reporting Standard (ESRS) E1 - Climate Standard, a Climate Transition Plan “provides comprehensive insight into the company's past, present and future climate protection efforts”. In addition, a CTP “should ensure the sustainability of a company and its business model”. The ESRS E1 Climate Standard also includes disclosure requirement E1-1 - Climate Transition Plan.

4. What are the elements of a Swiss Climate Transition Plan?

The CTP must cover the following elements:

  1. Governance: to demonstrate that an organization has board-level oversight on the climate transition plan and that there are defined governance mechanisms in place to ensure delivery of the plan’s targets
  2. Strategy: to demonstrate alignment with the company strategy and to outline plan assumptions, action and financial plans as well as , quantitative disclosures (where possible and appropriate) and disclosure of the key assumptions, methods and standards used for comparability purposes (art. 3 para 3 lit. b CIL)). Part of the “Strategy” of art. 3 para 1 lit.b is also the establishment of a CTP, which is comparable to “Swiss climate targets”.
  3. Risk Management: to outline an organization’s process for minimizing identified climate-related risks and maximizing substantive climate related opportunities.
  4. Metrics and Targets: time-bound, verified science-based quantitative targets which are in line with the latest climate science as well as GHG emissions reduction targets (see also “Guidance on Metrics, Targets and Transition Plans” (October 2021 version)and art. 3 para 4 CIL).

5. Scope of the Climate Transition Plans?

According to art. 964b para 4 CO the scope of the non-financial reporting includes all (sole or joint) controlled subsidiaries, regardless of their place of incorporation (so-called consolidated view).


The ORCM details the requirements of art. 964b para 1 regarding the reporting on climate related matters. Therefore, the consolidated reporting requirement of art. 964b para 4 CO also applies. Hence, the CTP according to art. 3 para 3 lit. a ORCM must cover all controlled subsidiaries regardless of their place of incorporation.


The ORCM references “Swiss climate targets”, which are stated in the CIL. The CIL takes a territorial view stating that the reduction targets are to be achieved in Switzerland (art. 3 para 1 CIL).


The question arises, whether the CTP, which takes a consolidated view, must apply a the “Swiss climate targets” stated in the CIL, to all (Swiss and foreign) consolidated subsidiaries? Our view is, that the reference in the ORCM to the “Swiss climate targets” is strictly meant to the “numbers/targets” set out in the CIL.


In conclusion, we are of the view that the CTP based on the ORCM must cover all consolidated subsidiaries and the GHG emission reduction targets for all these companies need to be comparable to the “Swiss climate targets” as set out in the CIL.

6. Ten Pitfalls from a Swiss legal perspective
  1. If your company is obligated to publish a non-financial report, climate reporting as well as the climate transition plan needs to be part of it as of 2025 (report on the year 2024). Your company needs to have adequate processes and procedures in place to design, approve and report on your CTP (in particular proper sing-off and governance procedures).
  2. It is recommended to apply TCFD and report accordingly as the ORCM assumes that your company complies with art. 964b para 1 CO if it complies with TCFD.
  3. If your company does not apply TCFD you must demonstrate how your company complies with the requirements of art. 964b para 1 CO.
  4. If your company does not follow any climate concept it needs to clearly declare and justify this decision (“comply or explain”).
  5. Your company needs to apply the so-called “double materiality”, ie climate issues cover both the effects of climate change on your company and the effects of your company’s activities on climate change.
  6. Your company needs to publish the climate report (as part of the non-financial report), including the transition plan, electronically in accordance with article 964c para 2 number 1 of the CO and it must be in at least one human-readable and one machine-readable electronic format in common international use. In addition, it must be made available on the company's website.
  7. There is a fine line between forward looking climate transition plan reporting and greenwashing. Greenwashing includes for example a) information, which is not wrong, but misleading or overstating certain effects, b) information which is too generic, and c) information about targets which are in itself not ambitious or aligned with broader goals (or a combination of the various elements).
  8. Internal ESG documentation: statements, targets and KPIs need to be internally documented and kept on file.
  9. Governance is key: set out clear roles and responsibilities, issue adequate policies and train employees on the wider elements of ESG as well as disclosure requirements and potential greenwashing topics. We recommend an ESG Policy to assure a future-proof, clear, but pragmatic approach.
  10. Last, but not least: not reporting (or false information) on climate matters, including a climate transition plan, as part of the non-financial reporting can lead to criminal sanctions of the board of directors in Switzerland.

7. Conclusion

Even with guidance available in the market through public and private initiatives around what best-in-class transition plans look like, climate transition planning as such will remain a challenge for all companies over the next years. One key challenge on the business side is, however, how to align a growth strategy of the business while still reducing the GHG emissions and achieving the Net Zero target by 2050. This requires an even greater effort and remains to be seen how this is achieved by the growth companies. But clearly, companies need to get ready, build up the required skills and train their employees.

Through this process they will be better equipped to manage climate-related risks and to identify new business opportunities as well as to retain and attract new talents.

We at MME together with our expert network are available with our ESG-Hub and ESG-Team to guide you through uncertain times.

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