Responsible Business Initiative Rejected
I. Reporting instead of Liability
On November 29, 2020, the popular initiative «The Responsible Business Initiative – Protecting human rights and the environment» was rejected. The initiative would have introduced an obligation of Swiss companies to ensure compliance by its subsidiaries and controlled suppliers with internationally recognized human rights and international environmental standards, a mandatory due diligence requirement and a liability of the parent company for any damage caused by its subsidiaries and suppliers in this context.
Now that the initiative did not reach a majority of approving Cantons and therefore failed, the indirect counterproposal of the Swiss Parliament (the Counterproposal) will come into effect shortly. It largely draws on EU regulation.
II. Elements of the New Transparancy and Due Diligence Obligations
The new rules on transparency and due diligence obligations deviate substantially from the Responsible Business Initiative. In particular, the new rules do not contain a liability regime.
The key elements of the new obligations are:
Non-Financial Reporting Obligations
Companies of public interest (i.e., listed companies, banks, insurance companies and other supervised companies in the financial sector) that together with controlled companies in Switzerland and abroad (the Group) (i) have at least 500 FTEs on annual average, and (ii) exceed either total assets of CHF 20 million or revenues of CHF 40 million, must report annually on non-financial matters. The proposed provisions in article 964bis et seq. of the Swiss Code of Obligations on transparency in non-financial matters are based on the Non-Financial Reporting Directive of the European Union.
The report must contain information necessary to understand the Group’s business development, performance, position, as well as the impact the Group’s activity has on environmental (including CO2 targets), social, employee, human rights and anti-corruption matters (the Non-Financial Matters).
According to a non-exhaustive list, the report has to include a description of the following matters:
- the business model and policies pursued, including due diligence applied, with respect to the Non-Financial Matters,
- the measures taken, together with an assessment as regards their effectiveness,
- the main risks in connection with the Non-Financial Matters resulting from the Group’s own operations and, where relevant and proportionate, from its business relationships, products or services, and
- the main key performance indicators with respect to compliance with such Non-Financial Matters.
In accordance with the principle of comply or explain, a reporting company may elect not to report in relation to matters with respect to which the Group does not pursue policies if the report provides a clear and reasoned explanation therefor. Further, the report may be based on national, European or international reporting standards, such as the OECD guidelines for multinational enterprises, the standards of the Global Reporting Initiative (GRI) or others.
The board of directors must approve the report, as must the shareholders’ meeting. The report does not have to be audited. It is published electronically and must remain accessible for at least ten years.
Due Diligence Obligations in Connection with Conflict Minerals and Child Labor
Companies with place of incorporation or head office in Switzerland that import or process minerals or metals containing tin, tantalum, tungsten or gold from conflict or high-risk areas are subject to special due diligence and related reporting obligations with respect to their supply chain. The same obligations apply to companies that offer products or services where there are reasonable grounds to suspect that they were produced or provided using child labor. Under certain circumstances, the Federal Council may define exceptions.
These obligations again follow the blueprint of EU regulation, specifically Regulation (EU) 2017/821, and the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas. They are divided into the following five categories:
- implementation of a management system with a defined supply chain policy and a system to trace back the supply chain,
- identification and assessment of actual and potential risks of adverse impacts of their supply chain;
- implementation of a risk management plan that provides for measures to prevent or mitigate such risks;
- independent third party audits regarding compliance with these obligations and
- issuance of an annual report on compliance with these obligations. The report must be made available electronically within six month after the end of the financial year and must remain accessible for at least ten years.
Fines for Violation of Reporting Obligations
Non-compliance with the transparency and due diligence obligations is subject to criminal liability. Anyone who makes false statements in, or fails to provide, a required non-financial report will be fined with up to CHF 100,000.
III. Entry into Effect
If no optional referendum is requested within 100 days after official publication of the Counterproposal in the Swiss Federal Gazette, the new transparency and due diligence obligations will enter into effect once the implementing ordinance has been finalized. In this case the reporting and due diligence obligations will need to be observed for the first time with respect to the financial year commencing one year after the entry into effect of the Counterproposal. For financial years that correspond to the calendar year, this would therefore likely be financial year 2023.
Swiss companies affected by the new rules, are well advised to start taking preparatory steps to be able to comply with the additional reporting and due diligence obligations upon their effectiveness.
Irrespective of the entry into effect of the new transparency and due diligence obligations, as part of the Swiss corporate law reform approved by the Swiss Parliament on June 19, 2020, new reporting obligations will be introduced for companies that, directly or indirectly through a controlled entity, extract minerals, oils, natural gas or primary forest wood and which are subject to an ordinary audit pursuant to art. 727 para. 1 of the Swiss Code of Obligations. These companies will have to publish a special report with respect to cash and in-kind payments to governmental authorities. Only payments that result from business activities triggering the new transparency requirements and that in the aggregate amount to CHF 100,000 or more per financial year must be reported. The board of directors must approve the report. The report must be made available electronically within six month after the end of the financial year and must remain accessible for at least ten years.
Companies trading the natural resources listed above are not subject to the new transparency obligations. The Federal Council is, however, authorized to declare the transparency rules applicable to trading companies as well.
On September 11, 2020, the Federal Council announced that the entry into force of these transparency obligations, as well as the rules on gender representation in boards of directors and executive management of listed companies, will enter into force already on January 1, 2021, a year earlier than the remainder of Swiss corporate law reform. Pursuant to the applicable transitional provision, the reports must be published for the first time in respect of the financial year starting one year after the entry into force of the new rule, i.e., with respect to the financial years starting from January 1, 2022 onwards.
This Homburger Bulletin expresses general views of the authors at the date of the Bulletin, without considering the facts and circumstances of any particular person or transaction. It does not constitute legal advice. This Bulletin may not be relied upon by any person for any purpose, and any liability for the accuracy, correctness or fairness of the contents of this Homburger Bulletin is explicitly excluded.