krfacts June Edition 2021 New obligations for companies to better protect people and the environment
The public initiative "For responsible companies - to protect people and the environment" (so-called corporate responsibility initiative) was rejected on November 29, 2020. Consequently, the indirect counter-proposal of the Federal Assembly will be implemented. In addition to the planned amendments to the Code of Obligations (CO), the preliminary draft of the associated Federal Council Ordinance is now available. Although the referendum period against the planned amendment and also the consultation period for the new Federal Council Ordinance are still running, it is useful to review the possible future obligations and the companies that will be affected perhaps as early as Q1 2022.
I. Reporting requirements on non-financial matters
The reporting obligation on non-financial matters includes an annual report on environmental (in particular CO2 targets), social and employee matters as well as respect for human rights and the fight against corruption. The corresponding report is to contain, on the one hand, the business model in practice and, on the other hand, the effects of the company's activities on the aforementioned concerns. In addition, the corporate concepts with regard to the aforementioned concerns, including the measures taken to implement them, are to be presented. Finally, the report must contain a risk assessment of the company's own business activities in connection with the non-financial issues.
The fulfillment of this reporting obligation requires preparatory work that should not be underestimated. The report must be published and be publicly accessible for at least 10 years. A violation of the reporting obligation can result in a fine of up to CHF 100,000.
Your company is subject to such a reporting obligation if the following cumulative conditions are met:
- Your company qualifies as a "public interest entity". Public interest companies are defined as such, as well as other legal entities and natural persons that require a license, recognition, authorization or registration from the financial market supervisory authority in accordance with the financial market laws (such as banks or insurance companies);
- Your company has at least 500 full-time positions on an annual average. Jobs held by domestic or foreign companies controlled by the company must also be counted;
- Your company has a balance sheet total of CHF 20 million or sales of CHF 40 million in two consecutive financial years. In turn, the domestic and foreign companies controlled by the company must be included.
II. Due diligence and reporting in the areas of "conflict minerals" and "child labor”
Additional due diligence and reporting requirements apply to theses areas.
1. Due diligence
The due diligence requirements in the areas of "conflict minerals" and "child labor" include, among other things, the maintenance of a management system and the preparation of a risk management plan. The management system is to set out the supply chain policy for minerals and metals possibly originating from conflict and high-risk areas, as well as for products and services where there is a reasonable suspicion of child labor. The system is ultimately intended to ensure supply chain traceability. The due diligence obligations are obligations of effort and not obligations of success. The company must therefore endeavor not to source conflict minerals or products with a reasonable suspicion of child labor. However, the due diligence obligations do not lead to an absolute ban on the import of conflict minerals or products or services with reasonable suspicion of child labor. Instead, the diligent efforts of companies as well as market transparency should lead to the use of neither conflict minerals nor products of child labor.
2. Reporting obligation in the area of "conflict minerals”
In the area of conflict minerals, your company is subject to a reporting obligation if two conditions are met: First, your company must import minerals (ores and concentrates) or metals containing tin, tantalum, tungsten or gold into Switzerland or process them in Switzerland. Second, these materials must originate from conflict or high-risk areas. These are areas in which armed conflicts are being waged or which are in a fragile situation following conflicts. Likewise, these are areas where governance and security are weak or non-existent and where widespread systematic violations of international law, including human rights abuses, are taking place.
In the Ordinance on Due Diligence and Transparency in the Areas of Minerals and Metals from Conflict Areas and Child Labor (VSoTr), the Federal Council specifies the annual import and processing quantities up to which a company is exempt from the due diligence and reporting obligation. The import and processing quantities of the individual domestic and foreign subsidiaries are added together. These quantities are currently under consultation.
3. Reporting obligation in the area of "child labor”
In the area of child labor, your company has an obligation to report if you offer products or services for which there is a reasonable suspicion that they were produced using child labor. This obligation does not apply to all companies.
To determine whether your company is subject to such a duty, the following three-step verification scheme can be applied:
- Does your company (including domestic and foreign companies controlled by the company) reach two of the following three conditions in two consecutive fiscal years: a) Balance sheet total of CHF 20 million; b) Sales revenue of CHF 40 million; c) 250 full-time positions on an annual average?
- Does your company source products or services from countries with medium or high child labor risks (according to UNICEF Children's Rights in the Workplace Index)?
- Is there a concrete suspicion of child labor (through internal or external indications)?
If the answer to these three questions is "Yes", your company is subject to the due diligence and reporting obligations described.
4. Exemption from due diligence and reporting obligations "Conflict Minerals" and "Child Labor”
Your company may be exempted from the obligations described in points 2 and 3 of this chapter if it demonstrates that it complies with internationally recognized regulations. These regulations are OECD guidelines, ILO conventions and an EU regulation, which are described in detail in Art. 6 VSoTr.
5. More questions
Whether and which obligations will affect your company in a specific case can only be definitively stated after the referendum period has expired and the current consultation process has been completed. However, companies should be aware of their potential obligations and already take precautions today for the early entry into force of the provisions - probably as early as the beginning of 2022. We will be happy to help you with this.