In the evolving field of sustainability reporting, Switzerland finds itself in a position akin to the United Kingdom, especially from the European Union’s perspective, which categorises both nations as “third countries”. Swiss companies, much like their British counterparts, are significantly influenced by EU regulations, both directly due to their operations on EU territory and indirectly due to complex supply chains and market expectations. However, there’s some reluctance within Switzerland and the UK against adopting or harmonising with EU regulations. While Switzerland is aligning its domestic rules with the CSRD’s predecessor, the Non-Financial Reporting Directive (NFRD) (further alignment towards CSRD is planned only at a later stage), the UK’s Brexit-driven desire for independence finds expression in alignment with the International Sustainability Standards Board (ISSB).
Amid this scenario, the CSRD establishes a new reality with its ESRS likely to become the new global super-standard for several compelling reasons.
To align or not to align, that is the question
Recognising the influence of these developments, the Swiss government has signalled its intention to align its reporting requirements with international practice. The UK is facing a similar decision to avoid drawbacks from double reporting and potential competitive disadvantages for its companies. The UK’s Financial Reporting Council (FRC) also advocates international alignment and interoperability.
However, the current ISSB status could have significant implications for corporates with cross-border operations. It is yet to be finalised as it currently only consists of a general and a climate standard, omitting other important disclosures in the areas of environment, social, and governance (respective standards may take years to be developed). If the UK, potentially alongside very few other countries including Singapore, Japan, and Australia, adopts the ISSB standards, it might challenge its enterprises in terms of sustainability (reporting) competitiveness, particularly due to its proximity and interconnectedness to the EU market. While the ESRS can incorporate ISSB standards (demonstrating interoperability), the reverse is not true. ISSB standards do not encompass the ESRS, and this disparity is unlikely to change in the near or medium term.
Adhering to ESRS is a safe path
The intersection of the Swiss and UK regulatory pathways with the evolving EU regulations and standards, highlights a crucial phase in the international landscape of sustainability reporting. How countries that don’t fall directly under the ESRS mandate navigate this environment will have a significant impact on their economic competitiveness and ability to harmonise with global regulatory standards. While Swiss regulations are set to either adopt or align with EU standards on sustainability reporting, as the Federal Council has announced, a similar approach is not (yet) planned for the UK. However, changing political majorities in the UK could bring the UK back on a route towards closer alignment with EU rules.
In conclusion, global companies based in the UK or with an undertaking in the UK should carefully scrutinise reporting at group level in accordance with the ISSB. A prudent approach would be to also incorporate ESRS reporting to ensure broader compliance and relevance in a global context. This dual approach could align with the local requirements while following a broader sustainability reporting strategy that fits into the competitive landscape of an increasingly interconnected and globalised economy. On the contrary, Swiss companies will be well-prepared for future-proof sustainability reporting once required to disclose non-financial information in accordance with ESRS. After all, they would be among the first adopters of the standard that is likely to become the global best practice.
