Switzerland Update: New bureaucracy tasks for companies in the metals and minerals sector

Companies affected by corporate social responsibility obligations

In November 2020, the Corporate Responsibility Initiative (“CRI”) failed to reach the required majority but that does not mean Corporate Social Responsibility (“CSR”) is off the table. In the run-up to the CRI vote, parliament drafted an indirect counter-proposal to amend the Code of Obligations (“CO”). Various aspects of the CRI were included in a softer form. After the expiry of the referendum period, this indirect counter-proposal is currently expected to enter into force on 1 January 2022.

The indirect counter proposal, as well as the revision of the stock corporation law, impose new obligations in the area of CSR on the following companies:

• FINMA-controlled companies and public companies (listed companies and companies with bond issues):
  Annual reporting obligations on non-financial issues such as social, environmental, and employee matters, respect of human rights and anti-corruption (the first report for the 2023 financial year expected to be issued in 2024);
• Companies that trade in metals and minerals:
  Transparency and due diligence in the supply chain (first report for the 2023 financial year is expected to be issued in 2024);
• Companies operating in areas where child labour is suspected:
  Transparency and due diligence in the supply chain (first report for the 2023 financial year is expected to be issued in 2024);
• Companies that are active in the extraction of minerals, petroleum, natural gas or logging of timber from primary forest and are subject to ordinary auditing:
  Annual report on payments in cash and in-kind to government entities at home and abroad (first transparency report for the 2022 financial year to be issued in 2023); and
• Public companies with a balance sheet total of CHF 20 million, sales revenue of CHF 40 million or an annual average of 250 full-time positions (at least two of three criteria):
  Gender quotas of at least 30% for each gender at both executive management and board of directors levels (to be implemented at board-level from the financial year 2026 and at executive management level from the financial year 2031) as well as reporting obligation if the gender quotas have not been achieved.

This article deals with the transparency and due diligence obligations in the trade of conflict metals and minerals. 

Problematic minerals and metals

A company with its registered office, head office or principal place of business in Switzerland that imports tin, tantalum, tungsten, or gold into free circulation in Switzerland or processes them in Switzerland falls under the new transparency and due diligence obligations if the metals and minerals come from certain areas (“conflict and risk areas”) and certain import quantities are exceeded in the process.

The first draft of the “Ordinance on Due Diligence and Transparency in the Sectors of Minerals and Metals from Conflict Areas and Child Labour” (“ODDT”) expands on the adjustments in the CO. If the trading volume of a company falls below these import volumes, the transparency and due diligence obligations are not applicable, regardless of the company’s business model. The initial draft of the ODDT with first suggestions for possible import volume thresholds went out for consultation in mid-April. The results are expected in July 2021.

According to the first draft of the ODDT, the following definitions shall apply:

• Minerals: Ores and concentrates containing tin, tantalum, tungsten, or gold, including by-products of each of the four;
• Metals: Metals containing or consisting of tin, tantalum, tungsten or gold, including by-products of each of the four;
• Supply chain: activities, that includes one’s own business activities and those of all economic operators and participants;
• Conflict and high-risk areas: Areas of armed conflict or areas in a fragile state following armed conflict or where governance and security are weak (e.g. failed states).
  Note: The current draft of the ordinance does not include a list of countries that should be considered as conflict or high-risk areas. Thus, the board of directors must carefully consider whether the country of origin falls under the aforementioned definition. 

The Ordinance provides for the following exemptions from the transparency and due diligence obligations:

• The import quantities according to ODDT are not reached.
• Companies within a group must cumulatively fall below the import quantities to be able to claim an exemption.
• Recycled metals are imported that have been produced from redundant or damaged materials or scrap.
• In order to claim this exemption, the board only has to establish that the metals originate from recycling.
• The Company adheres to the OECD Guidance on Conflict Minerals or to the EU Regulation on Conflict Minerals.

If a company sources metals or minerals as defined and these originate from conflict and high-risk areas, the company must carefully review and transparently report on its entire supply chain, including all subcontractors.

Due diligence obligations

Obligated companies must maintain a management system that enables the supply chain to be traced and enforce a supply chain policy at all levels. According to this supply chain policy, a company must monitor its suppliers and sub-suppliers, and these must also comply with due diligence obligations when procuring the respective minerals and metals from further sub-suppliers.

At all levels, it must be ensured that appropriate measures are taken to mitigate or avert negative impacts from its own sourcing from a conflict or high-risk area. This should be done, among other things, through on-site inspections, information from authorities or organisations, the involvement of experts, assurances within the supply chain or the use of certifications. The obligated company as well as all its suppliers and sub-suppliers must comply with the applicable national legislation. However, the minimum standard at all levels should be the OECD Guidance on Conflict Minerals.

In order to implement these due diligence obligations, an obligated company should include the supply chain policy in all its contracts. This can be done, for example, by including an audit right, which is not only imposed on the supplier, but which the supplier at the highest level must also pass on to the lower levels. In this way, a company can secure a permanent right to control.   

Transparency obligations

In obligated companies, the board of directors must report annually on the supply chain. Within six months of the end of the financial year, the board of directors must draw up a report in an official language or in English. The report must remain publicly accessible for ten years. Companies that distribute products of other companies that have themselves issued a report on the distribution of metals and minerals from conflict areas are exempt from reporting. It is expected that the first report will need to be issued for the 2023 business year.

Conclusion

Companies involved in the trade of metals and minerals should make the following checks:

Is tin, tantalum, tungsten or gold or any ores, concentrates or by-products of these being traded?

If the answer to the first question is “yes”: Do these metals and minerals come from conflict or high-risk areas?

If the answer to the second question is also “yes”: Are the minimum import quantities set by the Ordinance reached or exceeded (taking into account the entire group of companies)?

If a board of directors answers questions 1 – 3 with “yes”, the company is subject to the transparency and due diligence obligations and has to control and report on its supply chain accordingly.

If, on the other hand, questions 2 or 3 are answered with “no”, the company has no duty to act and the board of directors should record this in the minutes. Even if there is currently no duty to act, the board of directors should still consult the latest version of the ODDT at least once a year and answer questions 1 – 3 again in order to be able to react promptly to any changes in circumstances.

By Pauline Pfirtert, Vischer, Switzerland, a Transatlantic Law International Affiliated Firm.

For further information or for any assistance please contact switzerland@transatlanticlaw.com

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