This post is part of the SFG law review, a monthly contribution from Oberson Abels that keeps our members up to date on the latest legal and regulatory updates.
Improving transparency to make financial flows consistent with a low-carbon economy is at the heart of the Swiss and EU strategies to achieve sustainable finance. Besides the transparency requirements that apply in the context of the offering of financial instruments, new regulations aim at increasing disclosure duties for large companies to provide more and better information as regards climate risks. In this paper, we will have a closer look at the role assigned to transparency and how it materializes in the new Swiss regulations about non-financial reporting duties.
I. Swiss regulatory framework: transitioning from transparency recommendations to mandatory requirements
As reiterated in the latest report relating to sustainable finance published by the Swiss Federal Council on November 17, 2021, by contrast with the approach prevailing in the EU, Swiss policy on sustainable finance is generally based on the primacy of market economy solutions. According to this position, public policy should remain a subsidiary solution so far.
However, over the last year, the Swiss government has opened the door to a more direct approach, specifically in relation to the introduction of increased transparency requirements. Therefore, the new Swiss reporting obligations (Section II below) are a notable departure from the approach generally followed by the Swiss Federal Council.
II. New Swiss reporting obligations
a) ESG reporting duties
Since January 1, 2022, new reporting obligations apply to large Swiss companies that meet the three following conditions:
- being a public-interest company;
- with an average number of employees in two consecutive financial years (together with one or more Swiss or foreign companies they control, if any) of at least 500 full-time jobs per year; and
- exceeding in two consecutive financial years (together with one or more Swiss companies, or foreign companies they control, if any) at least one of the following thresholds: (1) total balance sheet of CHF 20 mio, or (2) turnover of CHF 40 mio.
These new reporting requirements are part of the implementation of the indirect counterproposal to the popular initiative “For responsible businesses – to protect people and the environment” (the Responsible Business Initiative). They introduce new obligations in relation to ESG matters at large, including information on companies’ environmental impact and climate-related objectives (such as CO2 emission targets).
The first annual report on non-financial matters will have to be published in 2024 for the financial year 2023. The report needs to be approved by the board of directors and the shareholder’s meeting.
The Swiss rules differ from the EU Corporate Sustainability Reporting Directive (the “CSRD“) in two critical aspects:
- Non-listed large companies as well as small and medium-sized listed companies will not be subject to non-financial reporting duties under Swiss law, which represents a significant portion of Swiss companies.
- The annual report on non-financial matters under Swiss law is not subject to the review by an external auditor, which may undermine the level of trust that investors and the public at large are ready to place in the information disclosed by a company.
b) Duty of disclosure regarding climate-related matters
On August 18, 2021, the Swiss Federal Council took a further step towards the implementation of binding regulations specifically regarding disclosure of climate-related matters by instructing the Swiss Federal Department of Finance, together with other departments, to draw up a draft ordinance by summer 2022. This piece of legislation will be the first binding regulation related to sustainable finance that will be adopted by the Swiss government.
The purpose of the upcoming ordinance is to clarify the obligations on climate reporting. It is still unclear how this regulation will coordinate with the ESG reporting obligation (Section II.a above) which also includes a section on environmental issues.
The exact content of the reporting duties regarding climate-related matters is not known yet. It should be drawn up along the lines specified by the Swiss Federal Council in its communication of August 2021:
- The climate report will not only provide information on the financial risks that the company incurs as a result of its climate-related activities, but also present the impact of the company’s commercial activity on the environment (concept of “double materiality” in line with the approach taken in the EU, through the CSRD).
- The information to be disclosed will be based on the recommendations on climate-related financial disclosures of the Task Force on Climate-related Financial Disclosures (“TCFD“). Therefore, unlike the approach taken by the EU in the CSRD, Switzerland has chosen to implement one specific global standard. This being said, the EU reporting standards also intend to be aligned with the existing international standards and build on the work of the TCFD.
- The new regulation should establish a minimum framework so that the climate reports published by different companies provide comparable information. This feature of the Swiss climate report is aligned with the objectives of the CSRD. In addition, the disclosures on climate-related matters should intend to be, where possible, forward-looking and scenario-based.
The contemplated new climate reporting duties will apply to the same limited scope of companies as provided in the new requirements related to ESG reporting (Section II.a above).
As it stands, this upcoming Swiss regulation presents the same significant differences compared to the CSRD as the ESG reporting framework (Section II.a above), which might compromise its effectiveness: a limited scope of application and no requirement for external assurance (e.g., audit by the statutory auditor). However, these features may still evolve in the future, for instance to align the Swiss requirements with those provided by the EU legislation (the CSRD).
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 This is the second part of a two-part paper which provides an overview of EU regulations (Part I) and Swiss regulations (Part II) about new non-financial reporting duties. You will find Part I at the following address: https://sfgeneva.org/increased-transparency-in-the-context-of-non-financial-reporting-duties/ (The Bridge – Newsletter, February 2022).
 “How can Switzerland make financial flows compatible with climate objectives? Report of the Swiss Federal Council in response to Postulate 19.3966 of August 16, 2019 of the Environment, Spatial Planning and Energy Committee of the Council of States” dated November 17, 2021.
 See Articles 964a et seq. of the Swiss Code of Obligations.
 I.e., in particular: companies listed on a Swiss or a foreign stock exchange, supervised companies in the financial sector and/or insurance companies.
 See “Increased transparency in the context of non-financial reporting duties (Part I)”, The Bridge – Newsletter, February 2022, (https://sfgeneva.org/increased-transparency-in-the-context-of-non-financial-reporting-duties/).
 At the federal level, the Swiss Financial Market Supervisory Authority (FINMA) has also taken measures as regards transparency and extra-financial reporting by amending its Circular 2016/1 “Publication – banks” and Circular 2016/2 ” Publication – insurers (public disclosure) ” with effect from July 1, 2021.
 The TCFD recommendations are available at: https://www.fsb-tcfd.org/recommendations/. The TCFD has been created by the Financial Stability Board in 2015 with the purpose of developing recommendations that could enhance market transparency and stability. As a result, the TCFD has designed a reporting framework for climate-related disclosure based on a set of 11 recommendations which encompasses 4 thematic areas: governance, strategy, risk management, and metrics and targets.
 Q&A: Corporate Sustainability Reporting Directive Proposal (https://ec.europa.eu/commission/presscorner/detail/en/qanda_21_1806).
 Proposal for a Corporate Sustainability Reporting Directive (CSRD), see in particular the Explanatory Memorandum, p. 3.