25 September 2023

ESG: The Swiss Federal Council in the EU's wake - tightening of obligations

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  • Compliance
  • Legal
  • Banking / Insurance
  • Governance / ESG

The Federal Council wants to adapt the reporting obligations (non-financial re-port) and the due diligence obligations for supply chains (supply chain due dili-gence) to the development in the EU and has coordinated key data for a consul-tation draft.

What applies today?

Swiss companies are required by law to create transparency about certain areas of their business activities. They must report on the risks in the areas of the environment, social issues, employee issues, human rights and the fight against corruption, as well as on the measures taken against these risks (obligation to report on sustainability; so-called report on non-financial issues according to Art. 964a et seq. of the Swiss Code of Obligations). Companies with risks in the sensitive areas of child labor and so-called conflict minerals must also comply with special and far-reaching due diligence and reporting obligations (due diligence obligations; VSoTr).

Where is Switzerland headed?

With regard to sustainable corporate governance, however, EU law has evolved in recent months. At the beginning of 2023, the corresponding new EU directive came into force and is currently being implemented in the member states. Due to the close economic ties, both large and small Swiss companies are affected - directly or indirectly - by the new EU rules. For this reason in particular, the Federal Council is convinced that Swiss law should be adapted to international developments in the area of sustainability reporting and due diligence obligations, taking into account its specific features.

  • Intention of the Federal Council: Mandatory reporting for companies with 250 employees - freedom to choose the standard

The Federal Council therefore already decided on December 2, 2022, to prepare a corresponding consultation draft by July 2024 at the latest.In a debate on September 22, 2023, the Federal Council has now defined the key parameters for the consultation draft. As in the EU, companies in Switzerland with 250 employees will already have to report on the risks of their business activities in the areas of the environment, human rights and the fight against corruption, as well as the measures taken to address these risks.Only companies that reach this threshold two years in a row are affected by the reporting obligation (analogous to the regulation in Art. 727 OR). Today, this obligation only applies to companies with 500 or more employees. In addition, reporting will now be subject to mandatory review by an external auditor.

  • Intention of the Federal Council: freedom to choose the standard

In contrast to companies in the EU, however, companies in Switzerland are to have the choice of either following the EU standard or another equivalent standard (e.g. OECD standard) for sustainability reporting. The Federal Council wants to analyze the so-called third country regulation in more depth.In particular, this involves the question of whether foreign companies operating in Switzerland are automatically subject to Swiss law or not.

  • Due diligence regarding the supply chain

In the area of supply chain due diligence, work in the EU is now well advanced. Due diligence requirements are envisaged that go far beyond the issues of conflict minerals and child labor. This development is also on the legislative radar of the Federal Council.

What is the roadmap?

In the area of due diligence, the Federal Council is currently in the process of analyzing in depth the impact of the planned EU directive for Swiss companies. The analysis is expected to be available by the end of 2023.

In the area of ESG reporting, the Federal Council is expected to adopt the corresponding consultation draft in mid-2024.

What does this mean for Swiss companies?

The legislative development in the area of ESG is very dynamic.Even medium-sized companies need to be prepared for reporting obligations and make the necessary preparations at an early stage. In particular, we recommend tackling the issue of internal responsibilities and thinking about how the necessary data for the reports can be efficiently collected and managed. Those who do risk analysis and prepare documentation today (non-financial report; audit documents for conflict minerals thresholds; audit documents for child labor; supply chain policy/supply chain due diligence policy) in order to comply with applicable law should address the issue of development (look into the next area) so as not to have to do work twice.