Switzerland Update: New non-financial reporting requirements. National and international developments

Despite the failure of the Corporate Responsibility Initiative (“CRI”) at the ballot box in November 2020, corporate social responsibility (“CSR”) is gaining relevance at the legislative level. At the national level, this is due to the parliament’s indirect counter-proposal to the CRI, which provides for non-financial reporting obligations for individual companies. The amendments to the indirect counter-proposal are expected to enter into force on 1 January 2022.

Who is affected by the reporting obligation?

The new non-financial reporting obligation according to Art. 964^bis ff. CO only affects a very limited group of companies of approximately 100.

A company has non-financial reporting obligations if it cumulatively fulfils the following three requirements:

• The company is a public interest entity according to the Audit Supervision Act, i.e. a public company (listed on the stock exchange, company with bond issues) according to Art. 727 para. 1 CO or a company supervised by FINMA according to Art. 3 FINMAG.
• The company, together with the domestic or foreign companies it controls, has an annual average of at least 500 full-time positions in two consecutive financial years.
• The company, together with the domestic or foreign companies it controls, has a balance sheet total of CHF 20 million or sales revenue of CHF 40 million in two consecutive financial years.

If a company is controlled by another company that fulfils the above-mentioned obligations or is required to prepare an equivalent report under foreign law, the subordinate company is exempt from the non-financial reporting obligation.

What does the reporting obligation entail?

In the non-financial reporting, the company provides information on non-financial issues on an annual basis. This means that the company must comment on topics such as environmental issues (especially CO² targets), social issues, employee issues, respect for human rights and the fight against corruption. In particular, a company should explain in the report how its business performance affects these issues (ideally in a positive way).

A company must disclose its policies on how it intends to protect and promote non-financial issues and the standards and due diligence that will be applied to them. The company must then evaluate the measures taken to implement these concepts and their effectiveness. In addition, the report should identify the significant risks to non-financial concerns associated with the business or in circumstances arising from business relationships, and how these risks are managed. The report may be based on national, European or international regulations, which should be explicitly mentioned. If a report on non-financial matters is prepared on the basis of a foreign or international body of rules or regulations without fulfilling all the requirements under Swiss law, the report must be supplemented accordingly. Groups of companies report on a consolidated basis.

The non-financial report must be signed by the highest management or administrative body (in an AG the board of directors) and approved by the body responsible for approving the annual financial statements (in an AG the general meeting). The report must be in one of Switzerland’s official languages or in English and should be published electronically immediately after approval. Finally, the report must remain available for 10 years.

The new provisions are expected to enter into force on 1 January 2022, however the final ordinance related to the indirect counter-proposal is not yet available. The transitional provisions stipulate that the new reporting rules will apply for the first time to the financial year beginning one year after the amendments come into force. This means that the first report on non-financial matters for companies whose financial year begins on 1 January will be due for the first time for the financial year 2023 in 2024.  

Interim conclusion

Companies should clarify the following:

1.Does the company fall within the scope of the reporting obligation on non-financial matters?

2.If the answer to the first question is “yes”, does the company or a controlling company already prepare reports based on foreign or international regulations?

3.If the answer to the second question is also “yes”, are all requirements under national law fulfilled?

If the second and/or third question is answered in the negative, the company should take the necessary measures to be able to account for CSR concepts in a way that is suitable for public disclosure. In this context, it is particularly important to consider what efforts the company is already making to fulfil CSR requirements. Depending on this, the existing efforts can be directly incorporated into a non-financial report.

CSR in Europe

Efforts are also underway in the EU to introduce good governance throughout the value chain. While individual EU member states already have CSR rules in the value chain, the EU itself is also working on a “due diligence” directive. Swiss companies that are present in the EU internal market will also have to deal with this directive, as it also contains an extraterritorial element, similar to the EU data protection law.

The European Parliament’s directive on due diligence and corporate accountability, published in the first draft so far, is currently still being reviewed by the EU Commission. Originally, it was planned that this directive would come into force in 2022 and be implemented by the individual members at national level within two years. Since the Commission’s report has not yet been published as announced, it can be assumed that this timetable will probably no longer be met. 

The “due diligence” directive provides that all companies operating in the EU internal market are covered by its scope. This means that the directive will probably also become relevant for many Swiss companies. Since this new legislative act will be issued in the form of a directive, the extreme case may also occur that all 27 EU member states enact individual national implementation of the directive. This means that a Swiss company would have to deal with the requirements in each country individually. Since the draft has already been criticised by the EU Commission, it is currently still unclear what the scope of the “due diligence” directive will actually be.

Even if the future is uncertain, a look at the past shows that CSR has been an issue in Europe for a long time. The “UK Corporate Governance Code”, which is often mentioned internationally as a model, has existed in Great Britain since 1992. The Code relies on public pressure on companies justify themselves, in that companies either have to comply with certain requirements or explain in their annual report why they are not doing so. This “comply or explain” principle is applied in other European countries, such as Switzerland (such as declaration if gender quotas are not achieved at board level from 2026 and at management level from 2031) or Germany (“declaration of compliance” in accordance with the German Corporate Governance Code for listed companies).

Summary

In the future, Swiss companies will be subject to stricter due diligence and accountability obligations. At the national level, non-financial reporting obligations will be introduced from 2023, as well as due diligence obligations in the areas of conflict minerals and child labour. At the European level, it is expected that reporting and due diligence obligations will also be introduced in all EU member states based on the “due diligence” directive potentially within the next five years.

Especially in view of the possibility of individual member states enacting their own (different) legislation to incorporate such reporting and due diligence obligations, we recommend an early evaluation of the efforts already made in the area of CSR in order to avoid duplication and to be able to use existing resources in the most effective way.

By Pauline Pfirter & Lia Börlin, Vischer, Switzerland, a Transatlantic Law International Affiliated Firm.

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

Disclaimer: Transatlantic Law International Limited is a UK registered limited liability company providing international business and legal solutions through its own resources and the expertise of over 105 affiliated independent law firms in over 95 countries worldwide. This article is for background information only and provided in the context of the applicable law when published and does not constitute legal advice and cannot be relied on as such for any matter. Legal advice may be provided subject to the retention of Transatlantic Law International Limited’s services and its governing terms and conditions of service. Transatlantic Law International Limited, based at 42 Brook Street, London W1K 5DB, United Kingdom, is registered with Companies House, Reg Nr. 361484, with its registered address at 83 Cambridge Street, London SW1V 4PS, United Kingdom.