Ordinance on climate reporting in the consultation process

An opportunity for Swiss companies

Theo Helfenstein
Sustainability & Climate Change, PwC Switzerland

Switzerland chooses a pragmatic approach to climate reporting. The ordinance on reporting on climate issues drafted by the EDF is being consulted until 7 July, 2022. By setting minimum requirements, the federal government is primarily giving the reins to the market itself. This should be seen as an opportunity. Companies that go further than what is required can secure an important market advantage.

The ordinance is based on the indirect counter-proposal to the Responsible Business Initiative (RBI), and aims to provide guidance and clarity to large public Swiss companies on the disclosures they must include in their climate reporting. This is intended to increase transparency and make the non-financial reporting of companies more comparable.

Double materiality in climate reporting

The ordinance has two main thrusts, with the aim of providing stakeholders with a more comprehensive picture. On the one hand, public reporting should show the financial risk which a company is exposed to due to climate change, and on the other hand, it should disclose what impact the company's business activities have on the climate. This so-called double materiality was first introduced by the EU in 2019 as an important criterion for sustainability reporting.

Implementing the TCFD recommendations

The recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) have gained global and cross-sector acceptance in climate reporting. Switzerland also officially pledged its support to TCFD in January 2021. As announced by the Federal Council in August 2021, the ordinance now provides for a binding implementation of the recommendations for Swiss companies. This should enable companies and investors to better quantify the financial impact of climate change on the business model. TCFD focuses on climate-related risks as well as opportunities, and specifically includes eleven disclosure recommendations in the four core areas of Governance, Strategy, Risk management and Metrics and targets.

Many larger Swiss companies support the TCFD recommendations on climate risk reporting, are working on implementing them or have already integrated them into their reporting. FINMA is also following the TCFD, and has already required major financial institutions to disclose climate-related financial risks this year.

The regulation also provides for a special role for financial institutions, and explicitly obliges them to disclose forward-looking scenario analyses. This is in line with the strategy of the Federal Council as well as the EU, according to which the promotion of a low-carbon and climate-resilient economy should primarily take place via the financial market, which in turn should have a knock-on effect on the real economy and increased competitiveness.

Using momentum as a competitive advantage

The requirements regarding CO2 targets and measurement are relatively unspecific. The targets should be comparable to the Swiss climate targets, and indirect Scope 3 emissions are not explicitly required. International initiatives and standards, which are already applied by many companies, are much stricter in this respect.

Companies that only have to comply with the Swiss requirements should see it as an incentive to go further to create an important competitive advantage. This is because investors, consumers and non-governmental organisations are increasingly demanding detailed and comparable information on ecological footprints and climate risks. This information is also important for decision-makers to better understand the benefits and risks from a business and financial perspective. For companies, this means addressing the issue of climate change strategically, identifying long-term risks, counteracting them and taking advantage of opportunities. As the demands on reporting systems and processes increase, so does the need for qualified staff to identify and analyse the necessary data.

It should be borne in mind that climate change is only one aspect of sustainability. More efforts will be needed for a future with transparent supply chains. For example, there are still large gaps when it comes to assessing and reporting on whether a company's operations along their global supply chain have a negative impact on biodiversity.

EU regulation and relevance for SMEs

Swiss reporting on non-financial matters is based on the current EU regulation "Non-Financial Reporting Directive" (NFRD). This will be replaced in due course by the planned Corporate Social Responsibility Directive (CSRD), whereby existing rules will be considerably expanded. At EU level, the exact content and scope of application is still being discussed. Swiss companies operating in the EU are expected to comply with the Swiss requirements if they implement the EU requirements. However, this also requires a group-wide consolidation of environmental data and corresponding reporting processes. Further, the EU regulation requires external assurance on the reporting.

It remains to be seen which Swiss companies will ultimately be affected by EU regulation. Nevertheless, it is already worthwhile for SMEs to proactively address climate reporting. This is not least because large companies will increasingly demand climate-related information from suppliers for their Scope 3 emissions disclosure in future, or even oblige them to provide this information. This can be used as an opportunity to stand out from the competition, and ultimately also to strengthen one's own resilience.

At the beginning of December 2021, the Swiss Federal Council enacted the legislative amendments of the indirect Counter-proposal to the Responsible Business Initiative (RBI). From the 2023 financial year onwards, large Swiss companies will be legally obliged to disclose the risks of their business activities in the areas of the environment (in particular CO2 targets), social issues, labour issues, human rights and the fight against corruption, as well as to report on the countermeasures taken. The same time frame also applies to the new due diligence and transparency obligations. The Ordinance on Due Diligence and Transparency Regarding Minerals and Metals from Conflict Areas and Child Labour (VSoTr) regulates which Swiss companies must comply with the new due diligence requirements and under which circumstances they are exempt. The threshold values set with regard to conflict minerals are based on EU directives, and the Federal Council can adapt them to any developments in Europe at any time. The new regulation requires companies to demonstrate due diligence, which requires a supply chain policy that allows for traceability. Active supplier and information management, as well as efficient monitoring coupled with standardised processes support the creation of transparency and compliance with legal requirements. All companies are encouraged to clarify in a timely manner whether they fall within the scope of the regulation. It should further be noted that the EU is also planning a due diligence directive in parallel to the reporting directive (CSRD).

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Contact us

Christophe Bourgoin

Christophe Bourgoin

Partner, Investor Reporting and ESG Leader, PwC Switzerland

Tel: +41 58 792 25 37

Theo Helfenstein

Theo Helfenstein

Sustainability & Climate Change, PwC Switzerland

Tel: +41 58 792 27 69