In the vote on November 29, 2020, the so-called Corporate Responsibility Initiative (RBI) failed despite the support of a majority of the cantons. As a result, the indirect RBI counterproposal was enacted, which will result in certain reporting and due diligence obligations for Swiss companies from 2023 onward. Many of our clients are concerned about who will be affected by the RBI, what it entails, and how they can begin to address the requirements now. In this article, we will describe how we are addressing the RBI requirements in practice with our clients.
Large companies are in the sights
With the RBI counterproposal, non-financial reporting obligations will be implemented for companies in Switzerland starting with the 2023 financial year. Uncertainty about these requirements and the respective workload are currently of concern for many Swiss companies— for which companies do these obligations really apply?
- Many companies are exempt from the non-financial reporting obligation based on their capital market orientation. Large companies that have issued neither shares nor bonds will not have to report on the non-financial aspects of their business in Switzerland in the future. However, one exception applies: if the company is a financial institution (criterion: FINMA supervision), it is subject to reporting requirements, irrespective of its capital market orientation. Put simply: anyone who operates with other people’s money is obliged to be more transparent.
- The size of the company also offers an exception. Smaller and medium-sized companies can relax, because this new legislation is aimed at larger companies with over 500 employees. The financial criteria of at least CHF 20 million in total assets or at least CHF 40 million in sales are no longer decisive in most cases.
- Lastly, a larger company in Switzerland can waive non-financial reporting if it is controlled by another company—either in Switzerland or abroad—that undertakes reporting.
The 2024 deadline is serious
As the new transparency rules will apply for the first time in the 2023 financial year, the first non-financial reports required by law will be due in 2024. Specifically, this means that companies will be required to report on their handling of environmental, social and employee matters, human rights, and anti-corruption. This information will help stakeholders understand the business development, the business results, the company’s situation and the impact of its activities on the above-mentioned concerns.
The importance of materiality
By law, only environmental, social and governance (ESG) concerns that are material to a company must be reported. Although the law does not prescribe what is relevant for a specific company, opportunistic or image-driven non-financial reporting is no longer permissible for companies subject to these reporting requirements. At this key point in sustainability work and sustainability communication, companies should not shy away from the effort required to conduct a careful materiality analysis in line with these requirements (see “Double materiality”).
In the preparatory work for the materiality analysis, two important building blocks of non-financial reporting can be created or revised at once: a possible update of the business model and the value chain description. In the materiality analysis process sketching both, the business model description as well as value chain description, can help identify the impacts and effects of various issues on the company and, as a result, can identify the material topics. The business model and the way in which these material issues are managed must then be explained in all reporting.
Although this groundwork is time-consuming, it should be concluded with validation and consultation by the highest decision-makers, which can further extend the timeline. As this consultation can increase the complexity and effort involved in the process, the preparatory work for the non-financial reporting for the 2023 financial year should be started early. In the future, the highest decision-makers, Board of Directors and the Annual General Meeting, will also have to approve the report.
In conclusion, although the impact of the new transparency obligations on the business conduct of Swiss companies can be debated, it is clear that sustainability must be given more attention in larger companies.
While companies impact the environment and society through their business activities, many environmental and social sustainability issues likewise impact business activities. To assess both of these types of impacts, causes and effects are identified, sorted, clustered and prioritized. The results are often presented in a two- dimensional materiality matrix, which is then used to define which material issues should form the basis of a sustainability strategy and subsequent reporting.
Emphasizing due diligence in the value chain
In addition to the transparency obligations for larger companies, the implementation of the RBI counterproposal will result in statutory due diligence and disclosure requirements regarding child labor and raw materials from conflict areas. Companies with 250 or more employees must evaluate their supply chain to ensure that there are no risks regarding conflict minerals and child labor. The following applies if a company cannot meet this requirement:
- If a company imports minerals or metalsTin, Tantalum, Tungsten, Gold from conflict areasAreas where there is armed conflict, fragile situations, or what are termed “failed states” (no governance/security). This also includes regions where human rights are systematically violated. … Continue reading , additional legal requirements must be met (see “Additional legal requirements”).
- If a company purchases raw materials or goods from countries where child labor cannot be ruled out, additional legal requirements must be complied with (see “Additional legal requirements”).
Additional legal requirements
- Statement and implementation of the management system (i.e., the supply chain) regarding conflict minerals and child labor, including a statement of the supply chain policy and a system for traceability of the supply chain.
- Identification and assessment of emerging risks, including their impact.
- Draft measures and risk management plan to limit these risks.
- Report on annual compliance with due diligence requirements.
If these obligations are not complied with, companies may have to pay high fines. These due diligence obligations have already been in force since January 1, 2022.
Start preparations early
In addition to existing legislation at the European level, such as in the European Union or Germany, expectations are also increasing in Switzerland for companies to evaluate and report on sustainability issues more comprehensively. As we expect the regulatory trend in sustainability to continue or even increase in the future, companies are well advised to start preparing their non-financial reporting at an early stage.
How we support companies
The implementation of the RBI indirect counterproposal obliges Swiss companies for the first time to be transparent about their own sustainability activities and results in mandatory sustainability reporting. We would be happy to assist you in this process. We have been advising companies for 20+ years on strategic, operational and communication issues related to sustainability.
|↑1||Tin, Tantalum, Tungsten, Gold|
|↑2||Areas where there is armed conflict, fragile situations, or what are termed “failed states” (no governance/security). This also includes regions where human rights are systematically violated. The trade of minerals in these regions can lead to further violations of human rights, support of armed groups or corruption.|