What is it about?
On 19 June 2020, the Federal Assembly adopted the indirect counter-proposal to the initiative ‘For responsible businesses – protecting human rights and the environment’ (Responsible Business Initiative). This was part of the debate on the revision of company law. Following rejection of the popular initiative on 29 November 2020, the Federal Council decided on 3 December 2021 to enact the law as of 1 January 2022. This relates to the provisions on transparency in non-financial matters (Art. 964a et seq. of the Swiss Code of Obligations, CO) as well as the duties of due diligence and transparency with regard to minerals and metals from conflict-affected areas and child labour (Art. 964j et seq. CO).
The Federal Council’s Ordinance of 3 December 2021 on Due Diligence and Transparency
in relation to Minerals and Metals from Conflict-Affected Areas and Child Labour (DDTrO) also entered into force on 1 January 2022.
The consultation procedure for the ordinance on climate reporting ran until 7 July 2022. It is expected to enter into force on 1 January 2023.
The definitive amendments to the CO (company law) of 19 June 2020 will enter into force on 1 January 2023.
What is the purpose of the counter-proposal to the Responsible Business Initiative?
The counter-proposal aims to require companies to act responsibly by introducing, on the one hand, reporting on non-financial matters and, on the other, due diligence in specific areas, without excessive bureaucracy. Large Swiss companies will be legally required to report on the environmental, social, labour, human rights and anti-corruption risks of their activities. Companies whose activities present risks in the sensitive areas of child labour and minerals from conflict-affected areas must comply with special and more extensive due diligence obligations.
When do the new provisions have to be applied?
The provisions entered into force on 1 January 2022. The law gives companies one year (2022) to adapt to the new requirements. The due diligence duties and reporting obligations will apply from the 2023 financial year onwards. Documentation for the 2023 financial year will be published in 2024.
Which companies fall within scope of the provisions of the counter-proposal?
Requirements for applicability and exceptions differ depending on the area, as follows:
Requirement to report on general non-financial matters
The reporting obligation applies to public companies and large financial institutions if, together with the Swiss or foreign entities they control, they have an average of at least 500 full-time equivalent positions and either a balance sheet total of at least CHF 20 million or sales revenue of at least CHF 40 million in two successive financial years.
If a company in Switzerland is controlled by a legal entity domiciled abroad that prepares an equivalent report, the company in Switzerland is not required to prepare a separate report.
Due diligence and reporting obligation in relation to minerals and metals
The due diligence and reporting requirements for minerals and metals apply to companies or groups that import and process volumes of minerals and metals, such as tin, tantalum, tungsten or gold, in excess of certain thresholds (defined in Annex 1 of the implementing ordinance: List of minerals and metals for which there are import and processing quantities below which undertakings are exempt from the due diligence and reporting obligations).
If verification reveals that the minerals and metals do not come from conflict-affected or high-risk areas, the company is required to document this and is exempt from the due diligence and reporting obligation. The requirements are also not applicable to the import and processing of recycled metals.
Due diligence and reporting obligations in relation to child labour
Companies are obliged to check whether there is reasonable suspicion of child labour.
Companies that, together with the Swiss or foreign companies they control, do not meet two of the three criteria below in two consecutive financial years are exempt from these due diligence and reporting requirements:
- Balance sheet total of CHF 20 million
- Sales revenue of CHF 40 million
- 250 full-time equivalent positions on average per year
Companies are also exempt if they can prove that the services provided to them come from countries with a low risk of child labour. If, on the basis of the verification, there is no reasonable suspicion of child labour, the company is obliged to document this and is exempted from the due diligence and reporting obligations. Other exceptions include companies that comply with equivalent internationally recognised regulations and report in accordance with these regulations.
Companies are subject to due diligence and reporting obligations when they offer products or services where the use of child labour is evident.
What should the report contain?
Requirement to report on general non-financial matters
On a consolidated basis, the report covers non-financial matters such as CO2 targets, social issues, personnel issues, respect for human rights and anti-corruption.
The report includes a description of the business model and concepts applied, a presentation of the measures taken and an assessment of their effectiveness, a description of the significant risks as well as the key performance indicators for the company’s activity in relation to the issues mentioned.
Due diligence and reporting requirements for minerals and metals
The company defines its supply chain policy in writing and communicates it to its suppliers and the public. The documentation describes the tools it uses to identify, assess, eliminate or mitigate possible adverse effects in the supply chain. Supply chain due diligence is required when there is a possibility that minerals and metals are sourced from conflict-affected or high-risk areas.
Due diligence and reporting requirements in relation to child labour
The company defines its supply chain policy in writing and communicates it to its suppliers and the public. The documentation describes the tools it uses to identify, assess, eliminate or mitigate possible child labour in the supply chain. In the event of reasonable suspicions of child labour, the company complies with its due diligence obligations. It must investigate the suspicion and take action, but also report it. In addition to national legislation, ILO (International Labour Organisation) Conventions 138 and 182 apply, which regulate the minimum legal working age and the form work may take.
Does the report have to be prepared by external auditors?
Compliance with the provisions relating to minerals from conflict-affected areas must be verified by an external company. The audit report shall state whether facts have been identified that demonstrate that due diligence has not been complied with (limited assurance). Audits of general non-financial reporting and due diligence and reporting on child labour are optional.
What is the responsibility of the board?
The board of directors approves and signs the report on non-financial matters and draws up an annual report on compliance with due diligence requirements. The general meeting must also approve the report on non-financial matters. In addition, the board of directors undertakes to publish the documentation in an electronic format and to ensure public access to it for at least ten years.
What are the consequences of breaching the provisions?
Anyone who intentionally makes false statements in reports, fails to report or fails to comply with the legal retention and documentation obligation for reports is liable to a fine of up to CHF 100,000. If the person acts negligently, the fine may be up to CHF 50,000.
Are Swiss rules in line with international developments?
Swiss legislation is in line with the regulations in force in other countries, in particular those of the EU. These include, on the one hand, the EU Directive 2014/95 on non-financial disclosures and, on the other, the EU Regulation laying down supply chain due diligence obligations for Union importers of tin, tantalum and tungsten, their ores, and gold origination from conflict-affected and high-risk areas. Switzerland goes one step further than the EU on child labour.
What is BDO’s assessment of the impact for companies?
The new provisions are largely based on the provisions in force in the EU. All sorts of questions remain open when it comes to concrete implementation of the provisions. The majority of Swiss companies will not be affected by these provisions. For large companies that already report on non-financial matters or are active in the EU, there will be little change. BDO recommends checking to what extent the company is affected by the Swiss and EU regulations and what content should be reported on in the future. The regulatory requirement can be seen as an opportunity to obtain more non-financial information as a basis for decision-making, and to increase transparency for all stakeholders.
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Transparency of commodities companies
Companies that are required by law to undergo an ordinary audit and which and which are either themselves or through a company that they control involved in the extraction of minerals, oil or natural gas or in the harvesting of timber in primary forests must produce a report each year on the payments they have made to state bodies (Art. 964d et seq. CO).
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