Swiss usher in corporate reporting and due diligence mandates

The reforms include new rules in the Swiss Code of Obligations related to the trade of minerals and metal ores – including tin, tantalum, tungsten and gold – originating from conflict-affected and high-risk areas. The resources are sometimes extracted using forced labour and are a known source of finance for armed conflict according to the EU, which last year implemented the Conflict Minerals Regulation as a means of restricting access to the same list of natural resources.

Companies whose registered office, central administration, or principal place of business is in Switzerland must comply with the new due diligence duties in their supply chain when they process the highlighted minerals and metals in Switzerland or release them in the Swiss market. They must also comply with the due diligence duties if they offer goods or services that have suspected links to child labour, though the import and processing of recycled materials are not subject to the new rules.

Relevant firms are required to have or put in place a suitable management system containing their supply chain policy, a system of supply chain traceability, risk assessments and mitigation measures. The public and firms’ suppliers must also be able to access this information - for example through on-site controls, communications with authorities and civil society or the application of certification systems.

Companies will have to publish reports on their due diligence obligations, which will remain publicly accessible for at least 10 years. Intentionally making false statements in a report, or failure to comply with the reporting obligation, may lead to a fine of up to 100,000 Swiss francs (US$108,000). Where the failures are negligent rather than intentional, a fine of up to 50,000 Swiss francs may be imposed.

Exemptions to the requirements exist for businesses with fewer than 500 employees and assets of less than 20 million Swiss francs or a turnover of under 40 million Swiss francs. Large corporations can also seek exemption if they can demonstrate that their supply chain contains a low risk of child labour or that they respect already internationally recognised conventions such as the UN Guiding Principles on Business and Human Rights.

Switzerland has also introduced more general non-financial and due diligence reporting requirements. These will apply from the start of the 2023 financial year to large publicly traded companies and other entities, such as banks and insurance companies, which have more than 500 employees and assets of at least 20 million Swiss francs, or a minimum turnover 40 million Swiss francs.

Under the new rules, a qualifying corporation must ensure that its annual report covers environmental, social and employee issues, respect for human rights and the fight against corruption. It must identify risks and mitigation measures taken, and the relevant due diligence concepts applied by the company. Foreign companies controlled by the corporation must also be included in the report, which has to be approved by management and shareholders before it is published and must remain public for 10 years. There is no requirement for an external audit of the report.

A report does not need to be prepared if a written explanation for its absence is given, but failure to comply with new rules, which require the first reports to be published in 2024, may result in a fine of up to 100,000 Swiss francs.

Fiona Cameron, supply chain management expert at Pinsent Masons, said: “Global moves to address human rights and environmental issues are increasingly focusing on corporate responsibility and the role it can play in meeting acceptable standards. In the EU for example, the Conflict Minerals Regulation came into force on 1 January 2022.”

“This aims to support the responsible sourcing of minerals by ensuring that EU importers or processors of tin, tungsten, tantalum and gold meet international responsible sourcing standards, set by the Organisation for Economic Co-operation and Development. Other initiatives also on the agenda include on corporate due diligence and corporate accountability adopted by the EU last year,” Cameron said.

“As countries strive to demonstrate their environmental, social and corporate governance credentials, more in this sphere is likely. Companies should examine their business model and supply chains now so that they are able to comply,” she added.

Gian Marchet Kasper, of Swiss legal firm Blum & Grob, said: "Since Switzerland just became an official supporter of the TCFD in January 2021, the new non-financial-disclosure requirements have been implemented rather quickly. Although the public referenda on a supply chain act and a CO2 act were recently narrowly unsuccessful in Switzerland, the pace of ESG-regulation is increasing considerably.”

“Even for corporations that now are not subject to these new duties, the question no longer is ‘if’, but rather ‘when’ they will be required to comply with ESG-criteria. It is advisable to start the transformation now to avoid a disruptive change in the future,” he added.

Dr. Eike W. Grunert, German commercial compliance expert at Pinsent Masons, said: “The effective date for the new Swiss requirements coincide with the, in parts, similar but more encompassing new obligations under the German Supply Due Diligence Act, requiring enterprises with significant work force in Germany to manage certain human rights and environmental risks in own business operations and supply chains.”

Grunert said: “Inevitably, groups with corporate presence in both countries need to align efforts to comply in a cross-border, and cross-function, exercise.”