No Match Found
Stricter due diligence duties for international operating companies and high-risk SMEs are in the spotlight, as a mean to end and prevent negative impacts on human rights and the environment along the global supply chain. The Responsible Business Initiative and the counterproposal offer two different paths towards this shared goal. Voters will decide in November. Here is what you need to know to prepare for both eventualities.
The Responsible Business Initiative (‘RBI’), launched in 2015 by a broad coalition of civil society organisations, requires that international operating companies as well as high-risk SMEs identify, prevent and mitigate their adverse impacts on human rights and the environment − in short that they conduct ‘due diligence’. Compliance would be enforced through a specific civil liability regime applying to damages caused by controlled foreign companies in their value chain.
In June 2020, parliament agreed on an indirect counterproposal. Large Swiss public companies would be required to issue a non-financial report in line with the current EU CSR Directive (also called the non-financial reporting directive). Companies trading conflict minerals or offering goods or services where there’s a reasonable suspicion of child labour would have to perform additional due diligence. There would be no new civil liability regime, with damages related to human rights violations in the Swiss company’s supply chain litigated through existing civil liability rules.
A vote will take place on November 29, 2020. If voters say yes, the initiative enters into force, with the Parliament required to swiftly adopt an implementing act. If they say no, the counterproposal applies.
Watch the recording of our past webinar on "Responsible business conduct: what challenges lie ahead?". Learn more about stricter due diligence duties, implications for socially responsible enterprises and best practice shared in our panel discussion.
The indirect counterproposal is short and conceptual in nature. It defines the core elements to be reported on (such as the business model, policies, due diligence applied, measures taken and evaluation of their effectiveness, material risks identified and their handling as well as the relevant key performance indicators) for environmental (in particular on CO2 targets), social, employee and human right matters and the fight against corruption. The law refers − in an optional provision − to reporting in accordance with national, European and international standards. If such standards are used, they must be referenced and adhered to in their entirety.
This means that companies have leeway in terms of how the law is implemented. We suggest for smaller companies which are reporting on non-financials for the first time to focus on the core elements without referring to reporting standards. However, we recommend larger companies with established non-financial reporting to identify and use standards. This is in principle consistent with developments in the EU, where the growing consensus – based on the public consultation on the review of the EU CSR-Directive of 2016 – is to require reporting in accordance with more specific standards to improve comparability, but at the same time to relieve smaller companies from over-detailed reporting requirements.
The RBI is not explicit on reporting duties, but requires reporting on the due diligence measures implemented. In comparison to the indirect counterproposal, the focus will be on environmental and human right matters.
The disclosure requirements proposed in the RBI, and even more so in the indirect counterproposal, are clearly following the trend for sustainability and non-financial performance to increasingly be in the spotlight of regulators, investors and stakeholders in general.
Corporate reporting must demonstrate value beyond the financial accounts. The purpose of such disclosures has clearly shifted in the last few years. It’s now all about understanding how inclusively and comprehensively a business is managed, how significant risks are managed, how strategic, sustainability-driven opportunities are seized, and ultimately how financial and non-financial value is created.
The non-financial reporting landscape has been developing and innovating over more than two decades, with multiple voluntary standards and frameworks available to business. This has resulted in a lack of consistent and comparable information for capital markets, investors and other stakeholders. This is one of the reasons at the centre of the ongoing consultation aimed at revising the current version of the EU CSR Directive. PwC supports globally accepted solutions for non-financial reporting standards building on the robust work already done. This is in line with the disclosure aspirations built into the RBI, but also the indirect counterproposal.
It is well understood by both business and the regulatory bodies that increasing transparency and consistency regarding the disclosure of non-financial information benefits not only stakeholders overall, but in particular the business itself. The vast majority of globally exposed companies agree that reporting on a set of non-financial metrics and disclosures is useful for the financial markets and the economy. This consensus has been underpinned by recent initiatives where, under the lead of business, a set of universal and industry-agnostic ESG metrics have been agreed.
It is well understood by both business and the regulatory bodies that increasing transparency and consistency regarding the disclosure of non-financial information benefits not only stakeholders overall, but in particular the business itself.
The initiative would add a new duty for directors: ensuring compliance with human rights and environmental standards abroad. The goal is to improve the accountability of directors for the sustainability of their business conduct. Under the counterproposal, the duties of directors will not be extended beyond the existing requirement to ensure compliance with Swiss and foreign law.
Open questions remain:
Discussions are ongoing, also at EU level, on the best way to tackle these issues clearly and proportionately.
Next year we’ll celebrate the tenth anniversary of the UN Guiding Principles on Business and Human Rights (“UNGP”). The main idea behind the UNGPs was to give a more social purpose to business enterprises. Their principal author, Professor John Ruggie, famously said that achieving this goal requires a smart mix of mandatory and voluntary measures. Asked how this smart mix should look in 2021, he welcomed the ongoing efforts aimed at greater consistency and quality of non-financial reports. He also called for mandatory corporate due diligence processes to reinforce transparency measures.
How quick will Switzerland be to engage in this endeavour? Swiss companies are expected to be more transparent on sustainability metrics. An ambitious agenda for ESG investing is on the horizon. Mandatory due diligence rules have been adopted or are in discussion abroad. Some, like the French loi de vigilance or Germany’s contemplated Lieferkettengesetz, cover the whole universe of human rights. Others focus on high-impact issues like child labour (in the Netherlands) or illegal deforestation (in the UK). The Responsible Business Initiative has fast-tracked the debate on these key issues.
Partner, Investor Reporting and Sustainability Platform Leader, PwC Switzerland
Tel: +41 58 792 25 37
Partner, Sustainability & Strategic Regulatory, PwC Switzerland
Tel: +41 58 792 45 23