The consultation on the ordinance related to the Responsible Business Initiative’s counterproposal was kicked-off. The draft ordinance provides further guidance on the implementation of the due diligence obligations.
With the 14 April 2021 announcement, the Swiss government wants to move forward towards a swift implementation of the indirect counterproposal to the Responsible Business Initiative (“RBI”) adopted by Parliament. After receiving various complaints in connection with the vote on the Responsible Business Initiative, the Federal Court rejected said complaints which means that the referendum period which was on hold could now start. It lasts until 5 August 2021. In order to allow the new regulation to enter into force as soon as possible the Federal Council has already sent the draft ordinance which further details the due diligence on conflict minerals and child labor as stipulated in the counterproposal into consultation. The consultation will last until 14 July 2021. According to the draft ordinance, the Federal Council intends that the indirect counterproposal is to enter into force on 1 January 2022, unless a referendum is held against it. The now published draft ordinance addresses some of the current open questions on the due diligence obligations. According to the Federal Council, the new provisions are largely in line with comparable regulations in the European environment. The rapidness of the procedure can be explained by the variety of initiatives in the context of ESG (Environmental, Social, and Governance), which are currently underway outside Switzerland.
Last November, the Responsible Business Initiative was narrowly rejected. Consequently, the indirect counterproposal will come into force. It aims to hold Swiss companies accountable for their actions by compelling them to increase reporting on environmental and social issues and fulfilling due diligence requirements regarding child labor and conflict minerals.
What does this latest development mean for companies in Switzerland?
Aside from scheduling a date and further defining the scope of the due diligence obligations, nothing has changed since the outcome of the vote last November. Please see here the previous blog on which we gave opinion and action steps needed with regards to the RBI. Unless a referendum takes place, which is highly doubtful, the new law is expected to enter into force soon, putting in place additional non-financial reporting and due diligence obligations on conflict minerals and child labor for the companies in scope.
We suggest that companies assess if the new regulation is applicable to their business and if so, that initial steps are taken to ensure non-financial reporting and due-diligence compliance from 2022 onwards. Companies should act now by asking the right questions. We recommend that companies engage as early as possible to understand how the new legislation affects them. It is important to understand your current state of the non-financial reporting and risk & compliance management as well as what your end-goal is. This will allow you more time to identify any changes needed and to implement the best solution.
The draft “Regulation on Due Diligence and Transparency regarding Minerals and Metals from Conflict Zones and Child Labor (VSoTr)” clarifies which companies must comply with the new due diligence obligations by quantifying the imports and processing of minerals and metals up to which a company is out of scope of the corresponding due diligence obligations. It also includes exemptions from the due diligence requirements for small and medium-sized enterprises (SMEs) and for low-risk enterprises in the field of child labor. Furthermore, the draft ordinance specifies the individual due diligence obligations and identifies relevant internationally recognized standards. Importantly, the draft ordinance provides some initial guiding elements on how companies can assess their risks. Finally, it specifies that the stipulated annual review by an independent third party regarding the fulfillment of the due diligence requirements on minerals and metals will need to be carried out by an audit firm overseen by the Federal Audit Oversight Authority (FAOA).
The business areas most affected by the new due diligence requirements will be risk & compliance management – and the transition will require the involvement of top management who will need to decide if the conditions regarding conflict minerals and child labor are met and if so, work on their management systems as well as eventually initiate an external review regarding due diligence on conflict minerals and metals. Again, we suggest that this analysis is made in time.
We would also suggest using this opportunity for future alignment with the increasing non-financial reporting and due diligence requirements in the EU. Indeed, some of the regulations which have served as a blueprint for the Swiss counterproposal are already being reviewed. On 21 April 2021, the European Commission issued its proposal for the revision of the Non-Financial Reporting Directive (NFRD) currently under way. Whilst an audit of the non-financial report is not formally required by the upcoming Swiss regulation which is in large parts based on the just-mentioned NFRD, the European Commission proposes to implement a requirement to obtain limited assurance on sustainability disclosures. This development combined with the – under the Swiss regulation – mandatory approval of reporting by the Board of Directors and the audit committee will likely raise expectations regarding the robustness of the information as disclosed in Switzerland. Companies should also factor in what their stakeholders’ (e.g. customers, investors, employees…) expectations are, even if they do not meet the above-mentioned criteria.
By focusing on the now, companies can use the opportunity to also ensure that they are aligned to the next wave of responsible business conduct which is on the horizon.
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