Due diligence and transparency obligations in connection with minerals and metals

The new provisions in the CO

 

The federal popular initiative "For responsible companies - to protect people and the environment", was rejected on 29 November 2020. Therefore the indirect counter-proposal of the Federal Assembly will come into effect. The deadline for the optional referendum was 5 August 2021. It is expected that the new provisions will enter into force on 1 January 2022.

The new provisions in the CO introduce, on the one hand, non-financial reporting obligations and, on the other hand, new obligations for Swiss companies that import minerals and metals from conflict-affected areas or are exposed to the risk of child labor in their supply chain. These companies must comply with topic-specific due diligence obligations. As the new provisions in relation to the sections on minerals from conflict-affected and high-risk areas and child labor require implementation at ordinance level, the Federal Council has sent the implementing provisions on the new due diligence obligations of companies for consultation. The consultation period expired on 14 July 2021. The Federal Office of Justice is currently evaluating the submissions from the consultation.

In the following, we will only take a closer look at who exactly must comply with which due diligence and transparency obligations in the minerals and metals sector and which exceptions exist.

I. Which companies must comply with due diligence and transparency obligations?

Companies whose registered office, head office or principal place of business is in Swit-zerland must comply with due diligence obligations in the supply chain and report on it if they import tin, tantalum, tungsten, their ores or minerals and metals containing gold from conflict-affected and high-risk areas or process them in Switzerland.

II. Exemptions from due diligence and reporting obligations in the field of minerals from conflict-affected and high-risk areas

The implementing provisions in the Ordinance on Due Diligence and Transparency Regarding Minerals and Metals from Conflict Areas and Child Labor ("VSoTr") define exemptions from the due diligence and reporting obligations in the areas of minerals and metals. Thus, the Federal Council annually sets import and processing quantities of minerals and metals up to which a company is exempt from the due diligence and reporting obligations. These limits are based on the values in Regulation (EU) 2017/821 on minerals from conflict-affected and high-risk areas. In the group relationship, the threshold values are to be considered consolidated.

For example, the quantity of gold in raw form is currently 100 kg/year, at which a company is exempt from the due diligence and reporting obligations.

Regardless of thresholds, the import and processing of recycled metals is not subject to due diligence and reporting requirements. According to the Ordinance, recycling occurs when waste products are reused for the original purpose or for other purposes.

III. Alternative: Compliance with internationally recognized equivalent regulations

Instead of following the requirements of the Code of Obligations, a company can also follow internationally recognized regulations. The VSoTr recognizes as equivalent (i) the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict -Affected and High-Risk Areas of April 2016, including all annexes and supplements, and (ii) Regulation (EU) 2017/8214. If a Swiss company applies and complies with one of these sets of rules in their entirety, it is exempt from the due diligence obligations under the Code of Obligations. The company must draw up a report in accordance with the selected set of rules and cite the internationally recognized sets of rules used in this report. A report according to the CO is then no longer required.

IV. What due diligence obligations apply to conflict materials?

If none of the exceptions described above apply to the company concerned, the following due diligence obligations must be complied with:

A. Management system

First of all, it is required that a company concerned introduces a management system. A management system is a set of processes, tools and methods by which a company aligns its operations with specific objectives. For minerals and metals that may originate from conflict-affected and high-risk areas, the company must establish its supply chain policy and a system to trace the supply chain.

B. Risk management plan

A risk management plan must also be prepared. A risk management plan describes the methods used by the company to identify, analyze and weigh the risks of adverse effects of business activities in the supply chain. It describes the approach to risk mitigation and key milestones related to the implementation of the measures taken. The level of detail required in this risk management plan depends on the type and size of the company and the nature of its business.

C. Supply chain policy

The company is obliged to set out the supply chain policy in writing and must be guided by Annexes I and II of the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict -Affected and High-Risk Areas.

The supply chain policy shall specify the instruments with which the company identifies, assesses, eliminates and prevents potential adverse impacts in its supply chain. These include in particular: 

  • a) on-site controls;
  • b) information, for example from public authorities, international organizations and civil society;
  • c) the consultation of experts and specialist literature;
  • d) assurances from economic operators and actors in the supply chain and other business partners;
  • e) the use of recognized standards and certification systems.

The VSoTr prescribes how the supply chain policy is to be implemented:

  • Communication: The company must communicate the supply chain policy to its suppliers and the public.
  • Contracting: The supply chain policy is to be integrated into the contracts with the suppliers.
  • Risk management: Identification and assessment of risks (see risk management plan).
  • Governance: The organization must be set up in such a way that internal or external persons can report concerns.

In this context, it should be mentioned that due diligence obligations are obligations of effort and not of success. For this reason, there is no absolute ban on the import of minerals and metals from conflict-affected and high-risk areas. Rather, the target state sought by the legislator is to result from a continuous influence of due diligence obligations and compliance transparency on the play of market forces.

The new due diligence and transparency obligations affect board members, board secretaries, legal counsel and sustainability and compliance managers. The new duties are to be integrated into the usual accountability and reporting obligations as well as into the internal control system.

The MME ESG team supports companies in implementing the new regulations. We offer workshops (topics: Subordination obligation, development of management systems, tools and measures for monitoring the supply chain, reporting), provide legal opinions (in particular negative assurance reports if exceptions apply) and support with the necessary compliance documentation (Code of Conduct; ESG clauses in supply contracts; etc.).

August 2021 | Authors: Martin Eckert, Stephan F. Greber und Luzia Wojahn

 

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