New ESG due diligence and reporting obligations enter into force
On December 3, 2021 the Federal Council resolved the entry into force of the provisions on non-financial reporting and on due diligence and transparency obligations re minerals and metals from conflict areas and child labor on January 1, 2022.
On December 3, 2021, the Federal Council announced that the indirect counter-proposal to the popular initiative «The Responsible Business Initiative – Protecting human rights and the environment», including the provisions of an implementing ordinance (the Ordinance), would enter into force on January 1, 2022. The new statutory provisions, on reporting of non-financial matters and the new due diligence and transparency obligations regarding minerals and metals from conflict areas and child labor will apply for the first time to the financial year beginning one year after the entry into force of the new provisions. This means that companies must apply the new provisions for the first time with respect to the financial year beginning in 2023. The first reports based on the new statutory provisions must therefore be issued in 2024/2025 with respect to the financial year beginning in 2023.
Based on the results of the consultation procedure, the Federal Council has tightened the new statutory regime in certain areas and made clarifications in others.
For example, the Federal Council has limited the exemption applicable to SMEs such that SMEs are only exempt from the new due diligence and reporting obligations if they do not offer products or services that were «patently» manufactured or provided using child labor (Art. 8 of the Ordinance). SMEs are companies which, together with the domestic and foreign companies they control, fall below two of the following thresholds in two consecutive financial years: A balance sheet total of CHF 20 million, sales revenue of 40 million and 250 full-time positions on an annual average.
Furthermore, the general exemption from the due diligence and reporting obligations in relation to recycled metals has been removed. The Ordinance continues to provide for certain exemptions with regard to recycled metals (e.g., no requirement for a notification procedure, no risk management and no audit by an auditing company), but according to the revised provisions, a supply chain policy, a system to trace back the supply chain must nonetheless be established and a report must be prepared with regard to recycled metals (art. 12 para. 3 of the Ordinance). This is in contrast to Regulation (EU) 2017/821, which in relation to recycled metals requires only that companies make their origin determination of the metals public and describe what measures they have taken with regard to this determination.
The new Ordinance requires companies to establish a notification procedure that enables all interested persons to express substantiated concerns about the existence of a potential or actual adverse effect in connection with minerals and metals from conflict and high-risk areas or child labor (Art. 14 of the Ordinance).
The Federal Council has extended the list of the internationally recognized equivalent regulations that companies must adhere to in order to be exempt from the due diligence and reporting obligations with regard to child labor. For this purpose, companies must now apply both ILO Conventions no. 138 and 182, the ILO-IOE Child Labor Guidance Tool for Business and either the OECD Due Diligence Guidance for Responsible Business of May 30, 2018 or the UN Guiding Principles on Business and Human Rights. According to the initial draft Ordinance, in addition to the application of ILO Conventions no. 138 and 182, the application of either the ILO-IOE Child Labor Guidance Tool for Business or the OECD Due Diligence Guidance for Responsible Business of May 30, 2018 would have been sufficient for an exemption from due diligence and reporting obligations.
In other areas, the Federal Council has made clarifications in the Ordinance itself and in the explanatory report to the Ordinance. For example, the Ordinance now clarifies that companies subject to consolidated reporting are exempt from separate reporting (Art. 17 para. 1 of the Ordinance).
In the explanatory report to the Ordinance, the Federal Council has made clear that the documentation required by the Ordinance (cf. Art. 3, 5, 7, 12, 13, 14 of the Ordinance) does not need to be published and hence, business secrets can be kept protected.
The revised explanatory report to the Ordinance also clearly stipulates that due diligence obligations may generally be prioritized and graded according to the associated risks. In particular, risks should be assessed according to the probability of their occurrence and severity of the possible harmful effects, and the measures to be taken are to be prioritized accordingly. The first draft of the explanatory report contained this principle only with regard to the system to trace back the supply chain in relation to child labor.
This Bulletin expresses general views of the authors as of the date of this Bulletin, without considering any particular fact pattern or circumstances. It does not constitute legal advice. Any liability for the accuracy, correctness, completeness or fairness of the contents of this Bulletin is explicitly excluded.