
The growth of sustainability regulation: new Swiss sustainability rules- what commodities traders need to know
As the commodity sector grapples with increasing demands for sustainability information from regulators, banks and consumers, Swiss companies are facing new sustainability reporting challenges.
The Swiss Federal Council has proposed amendments to the Swiss Code of Obligations to align Swiss regulations with the EU’s Corporate Sustainability Reporting Directive (CSRD). These changes would significantly expand the number of companies required to report and would introduce stricter standards, including mandatory external audits. Traders and banks should prepare for these new reporting obligations, which may affect compliance costs, sustainability targets, and have implications for sustainability linked financings.
Why now?
The EU has introduced tougher sustainability reporting requirements for certain companies incorporated, or with a significant presence, in the EU. The new EU rules are set out in the CSRD, which entered into force on 18th December 2022 and will be phased in for entities which are ‘in scope’ from the 1st January 2024 until 2029.
The CSRD amended existing EU reporting rules that applied under the Non-Financial Reporting Directive. The EU reporting rules now impose reporting requirements on approximately 50,000 entities (as opposed to 11,000 entities under the previous rules).
The CSRD forms part of the EU’s efforts to position itself as a leader on sustainable finance. The changes to the EU rules will, directly or indirectly, affect many Swiss companies because of the close economic ties between Switzerland and the EU.
Swiss companies with significant activity in the EU, or which have EU- listed securities, will be required to report under the CSRD.
As the existing Swiss rules are closely aligned with the pre-CSRD rules, the Swiss Federal Council has proposed that Swiss law should evolve to keep pace with the changes to the EU rules. The amendments to the Swiss rules would expand the number of companies subject to reporting requirements from around 300 under current rules, to approximately 3,500 companies.
How closely would the new Swiss rules be aligned with the CSRD?
The new Swiss rules are broadly aligned with the CSRD. They would apply to companies that meet a financial threshold test and have more than 250 employees (as opposed to 500 employees under current Swiss rules). The financial threshold test would be met either by having total assets of more than CHF 25 million or sales revenue of more than CHF 50 million, over two consecutive years1. There are exemptions for certain small companies.
They adopt the ‘double materiality’ concept, a key concept under the CSRD. This means companies would have to report not only on how ESG issues impact the company, but also on the external impact of the company’s activities on sustainability issues.
Like the CSRD, they would also require sustainability information to be audited by an independent third party. This is in contrast to the current Swiss reporting rules, under which companies are not required to verify sustainability reports.
One significant difference between the proposed Swiss rules and the CSRD is that Swiss companies would be free to choose whether to adopt the European Sustainability Reporting Standards (ESRS) or another equivalent standard for sustainability reporting.
CSRD is that Swiss companies would be free to choose whether to adopt the European Sustainability Reporting Standards (ESRS) or another equivalent standard for sustainability reporting.
What must be reported?
In-scope companies would need to report on “sustainability aspects” (“Nachhaltigkeitsaspekte”) relating to environmental risks, social issues, human rights and governance. Whilst the current reporting rules refer to these kind of issues as “non-financial matters”, the Swiss Federal Council has recognised that such information can indeed be financially relevant. The proposed rules therefore adopt the terminology of “sustainability” information. This follows the EU approach under the CSRD.
Environmental factors include progress towards the achievement of net-zero greenhouse gas emissions (GHG) by 2050. The notes to the draft legislation explain that climate reporting would include scope 1, scope 2 and scope 3 GHG emissions, in accordance with the current GHG Protocol Corporate Accounting and Reporting Standard.
As mentioned, Swiss companies would be free to choose whether to adopt the ESRS or an equivalent standard.
How would the new rules affect the commodity sector?
If the new rules become law, more companies will be required to report and the sustainability reporting requirements will be stricter. There would also be a mandatory external assurance requirement and non- compliance could lead to penalties under Swiss criminal law.
Swissnégoce, the Swiss Commodity Trading Association, has published an open letter to the Swiss government supporting the harmonisation of the Swiss rules with the CSRD, but highlighting the potential costs to Swiss companies in the commodities sector. It has called for the Swiss government to consider providing financial support for reporting and auditing costs. It has also called for the rapid development of Swiss sustainability standards equivalent to the EU standards, to avoid double reporting.
For its part, the Federal Council has stated that it is currently examining how the federal government could provide Swiss companies with tools to implement the new requirements.
What happens next?
The consultation period ends on 17th October 2024. If the new rules are adopted, there is expected to be a two year transition period. This means that, were the changes to come into force by the start of 2025, the new reporting rules could be applicable for the 2027 reporting period.
What can companies do to prepare?
Swiss companies will need to prepare for the potential rule changes and should consider the following key steps:
- Awareness. Ensure you are familiar with both the proposed Swiss regulations and the CSRD, as well as the relevant reporting standards.
- Assess current reporting. Assess your current sustainability reporting frameworks, including any voluntary sustainability standards with which you comply. Determine whether these are aligned with the new Swiss rules and other reporting rules to which you may be subject in the markets in which you operate (e.g. CSRD).
- Sustainability linked products. Review any existing sustainability linked financings you are using. There may be opportunities to align the sustainability targets under these products with the information to be disclosed under your reporting obligations. This might help streamline sustainability compliance efforts, and strengthen any broader sustainability commitments.
- Stay informed. Engage with the Swiss Federal Council consultation process on the new rules and stay updated on any new developments. Speak to your advisors about how the rules will apply and the impact on your business and existing sustainable financings.
u003cstrongu003eCURRENT SWISS SUSTAINABILITY REPORTING RULESu003c/strongu003ernrnu003cstrongu003eThe current reporting rules were introduced by the Counter- Proposal to the Responsible Business Initiative and came into force on 1st January 2022 by an amendment to the Swiss Code of Obligations2. In summary:u003c/strongu003ernu003culu003ern tu003cli style=u0022list-style-type: none;u0022u003ernu003culu003ern tu003cliu003eu003cstrongu003eInternal approvals. u003c/strongu003eAs a general rule, sustainability reporting must be approved byu003c/liu003ern tu003cliu003eu003cstrongu003eAudit/assurances.u003c/strongu003e Not required under the current rules.u003c/liu003ern tu003cliu003eu003cstrongu003eApplies to a limited number of companies. u003c/strongu003eOnly about 300 Swiss companies are currently within scope. These are, broadly, “public interest” entities (i.e. listed companies, financial institutions) that have more than 500 employees and u003cstrongu003eeither u003c/strongu003erevenues of more than CH 40m or a balance sheet of more than 20 m.u003c/liu003ern tu003cliu003eu003cstrongu003eLimited reporting requirements. u003c/strongu003eIn-scope companies must report on ESG issues, including CO2 goals and respect for human rights. This includes reporting on relevant policies and risks to the business.u003c/liu003ern tu003cliu003eu003cstrongu003eInternal approvals. u003c/strongu003eAs a general rule, sustainability reporting must be approved by shareholders.u003c/liu003ern tu003cliu003eu003cstrongu003eAudit/assurances.u003c/strongu003e Not required under the current rulesu003c/liu003ern tu003cliu003eu003cstrongu003eAdditionalu003c/strongu003e u003cstrongu003esustainabilityu003c/strongu003e u003cstrongu003edue diligence. u003c/strongu003eThe current rules require certain entities in the minerals and metals sector, or whose supply chain might reasonably be at risk of using child labour, to carry out due diligence and provide reporting. These rules are not affected by the proposed changes to sustainability reporting.u003c/liu003ernu003c/ulu003ernu003c/liu003ernu003c/ulu003e
Footnotes
- Companies with fewer than 250 employees are also within scope of the reporting requirements if they meet both limbs of the financial threshold test, subject to exemptions.
- Swiss Sustainability Reporting obligations (CO 964a-c)
