• Silvan Jurt, Partner |
  • Patrick Schmucki, Director |

Despite a majority of votes, the so-called Responsible Business Initiative (RBI) is rejected. It fails due to the "cantonal majority" rule. The result shows that companies are increasingly in the spotlight and that the demands on their corporate responsibility have risen considerably in the recent past. This may not simply be interpreted as a return to business as usual – the indirect counter-proposal will impose specific new obligations on companies.

What can companies expect from the indirect counter-proposal?

With the rejection of the people' s initiative "Towards responsible companies – protecting people and the environment" ("Responsible Business Initiative"), the indirect counter-proposal, which was adopted by the Swiss parliament and supported by the Swiss Federal Council, enters into force as a matter of principle. However, a referendum could still be initiated against the indirect counter-proposal, which could mean back to square one.

The indirect counter-proposal introduces reporting obligations that are already part of standard practice for many companies. Our latest study "The time has come" shows that for its top 100 companies at least, Switzerland is in the upper middle range worldwide. Already today, 80% of these companies report on social and ecological concerns. This means that, at least for the major players, there will hardly be any fundamental changes from their current voluntary practice. However, for smaller companies, which until now have placed less emphasis on non-financial reporting, the pressure for greater transparency will increase. This is true, incidentally, even in the absence of any specific legislation. Increasingly, investors are asking questions about the company's dependence on scarce resources, its risk profile in the context of climate change and its handling of social issues. To ensure access to financing also in the years to come, companies can hardly avoid non-financial reporting. Even SMEs can no longer completely ignore this topic in view of the increasing international regulation regarding a sustainably financed economy.

With the introduction of a statutory due diligence, a requirement is being introduced that many of the companies concerned were previously unaware of and which is therefore likely to cause considerable effort in implementing. The new provisions in the Code of Obligations require that the companies concerned implement a management system so that any relevant risks associated with financing conflicts and child labor may be identified and mitigated. Especially the requirement to do this with 

a transparent supply chain will present the companies concerned with challenges, depending on the complexity of their supply chain. But for many, even just identifying and assessing these risks, and addressing them in a targeted manner is likely to be uncharted territory.

Who is affected and what needs to be done?

The annual non-financial reporting obligations are imposed on public interest companies  which, together with the companies controlled by them, employ at least 500 full-time positions on annual average in Switzerland and abroad in two consecutive financial years and exceed either the threshold of CHF 20 million balance sheet total or CHF 40 million turnover. There are also limited possibilities for easing the burden on controlled companies.

The non-financial report must address environmental concerns, in particular CO2 targets, social and labor issues, human rights and the fight against corruption. The report should contain the information necessary for understanding the company's performance, financial results, its situation and the impact of its activities on these aspects. The law also specifies further details, such as a description of the business model, concepts of due diligence, relevant risks, etc.

The reporting regulations are thus in line with the European regulations. It is not yet clear which standards will become applicable. There are, however, many standards and frameworks available that help to structure the report and which also enable third-party verification. Those companies that are new to these reporting obligations and the appropriate standards will also need to think about the design of future reporting and who the recipients are meant to be.

As regards the introduction of a due diligence management system, the legislator has yet to clarify the situation. As a general principle, the indirect counter-proposal stipulates that companies whose registered office, principal place of business or headquarters are located in Switzerland must comply with due diligence obligations along the supply chain and report on them if they transfer tin, tantalum, tungsten or gold-bearing minerals or metals from conflict and high-risk areas, bringing these into free circulation in Switzerland or processing them in Switzerland, or offering products or services for which there is reason to suspect that they have been manufactured or provided using child labor.

The Federal Council is still to set limits on so-called "conflict minerals" and exceptions, e.g. for SMEs. There will also be audit requirements, which also still need to be defined.

The conditions under which companies that comply with an equivalent, internationally recognized set of rules, in particular the OECD Guidelines, are exempted from such due diligence and reporting obligations will also need to be clarified. In this respect, it already seems apparent that the relevant methods will be based on the UN Guiding Principles and the guidelines developed from them by various organizations. Many companies are already applying them. They provide clear guidance on how companies can put due diligence requirements into practice.

It is now essential for companies to define responsibilities, acquire basic knowledge and start implementing the new requirements in good time. This can take a long time and require many resources, depending on the company's current level of maturity.

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