In 2024, Swiss listed companies will be required to submit their non-financial reporting to shareholder approval for the first time. The requirement was brought forward by a 2022 review of the Swiss Code of Obligations (CO), which was subsequently amended to require that large Swiss public interest companies prepare a report on non-financial matters (i.e., environmental, social, and employment-related matters, respect for human rights, and anti-corruption) on an annual basis.

The reporting obligations apply for the first time for fiscal year 2023, meaning that listed Swiss companies, banks and insurance companies with at least 500 full-time positions, total assets of CHF 20 million, or revenues of CHF 40 million will be required to offer shareholders a vote on the non-financial report starting at their 2024 annual general meetings. This post provides background on the legislation and the broader reporting landscape, and an overview of what it all means for companies and investors.

Legal Framework

In June 2020, Swiss Parliament adopted an indirect counter-proposal to the Responsible Business Initiative (RBI) bill, which had been filed by a public coalition of civil society organisations in November 2016. The original RBI bill aimed at giving third parties the ability to hold Swiss-domiciled companies and their boards accountable for events related to environmental and social misconduct occurring throughout a company’s global supply chain.

The RBI bill was ultimately rejected in a November 2020 referendum. However, in January 2022, the CO was revised to incorporate the indirect counterproposal to RBI bill by the Swiss Parliament. As opposed to the more sweeping regulation contained in the RBI bill, the scope of the counterproposal was limited to increased disclosure requirements on non-financial reporting and due-diligence processes in the areas of conflict materials and child labour.

Reporting Requirements

The CO now requires the non-financial report to include information necessary for understanding a company’s business performance and outcomes, its current standing, as well as the impact of its operations on non-financial matters. Specifically, the report needs to outline (a) a company’s business model, (b) details on policies, due diligence, implementation measures in relation to non-financial matters, and (c) risk assessment and key performance indicators on non-financial matters. The obligations apply on a comply-or-explain basis, whereby a thorough and acceptable explanation for deviation from the CO’s disclosure requirements can be provided in lieu of compliance.

Companies subject to the new reporting requirement may follow national, European or international reporting standards, e.g., the guidelines of the Organisation for Economic Cooperation and Development (OECD), provided that the applied reporting framework is disclosed in the non-financial report. In any case, however, all CO disclosure requirements must be met. Should companies fail to meet these standards, they will be required to prepare and disclose a supplementary report to cover the remaining missing information. Articles 964d and 964j of the revised CO also set specific reporting and due diligence requirements for large companies that source metals and minerals from conflict areas or offer goods or services where there is a reasonable suspicion of child labour.

Vote Structure

The CO does not specify if the vote on non-financial reporting should be binding or advisory. This may raise concerns around the possible effects of a failed vote and the identification of accountability within a board, especially with regards to how the board intends to use the vote results as part of its broader shareholder engagement efforts on non-financial matters. Nevertheless, Article 325ter of the Swiss Criminal Code rules that failure to comply with reporting obligations on non-financial matters and due diligence processes, or providing false statements in reporting, may result in fines up to CHF 100,000 for board members. Negligent acts could incur fines up to CHF 50,000.

Other New Requirements

The Ordinance on Climate Disclosures, approved by the Swiss Federal Council in November 2022, defines additional transparency obligations on climate matters, in addition to CO-related reporting on non-financial information In particular, from 2024, companies reporting in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) will be considered compliant with the disclosure requirements outlined in the CO.

Current Reporting Landscape

While the CO disclosure obligations are only applicable from 2024, sustainability reporting is already recommended under the listing rules of the SIX Swiss Exchange, and several Swiss companies have already voluntarily prepared a sustainability report in accordance with a recognized international standard. In total, 48 out of 259 companies listed on the SIX Swiss Exchange issued a sustainability report following the standards set by Global Reporting Initiative (GRI).

All companies on the SMI index already provided comprehensive sustainability reporting covering fiscal year 2022. In terms of transparency, they all provided reporting in alignment with TCFD recommendations, including disclosure of their Scope 1, 2 and 3 emissions.

In addition, approximately 90% of them expressed their commitment to be a participant or a signatory of the United Nations Global Compact (UNGC). A further 85% of SMI-listed companies indicated that their human rights policies are aligned with the standards set by the International Labour Organization (ILO) or the Universal Declaration of Human Rights (UDHR).

Finally, Berner Kantonalbank AG, Calida Holding AG, Interroll Holding AG and UBS Group AG already sought shareholder approval of their non-financial report on advisory basis at their 2023 AGMs, with average support of ~92%. UBS was the only company recording below-90% support – i.e., 81.3%.

Alignment with EU Regulations

By establishing a baseline for transparency on non-financial matters, the amendments to the Swiss CO on non-financial reporting and due diligence obligations appear to be oriented in the same direction as developments in sustainability-related regulation for countries in the European Union. Specifically, the CO’s non-financial reporting obligations largely align with the EU’s Non-Financial Reporting Directive (NFRD), which has mandated large public companies in the European Union to report on non-financial material environmental, social, and governance issues since 2017.

However, from 2024, NFRD is set to be replaced by the EU’s Corporate Sustainability Reporting Directive (CSRD). With the CSRD, reporting companies will be required to conduct a double materiality assessment, undergo limited assurance, comply with the newly introduced European Sustainability Reporting Standards (ESRS), and disclose climate-related information following the TCFD framework. The CSRD sets more rigorous expectations on the quality, completeness, and comparability of the non-financial information than what is currently mandated in Switzerland.
Although the incoming EU reporting requirements go beyond the CO, unlike in Switzerland there is no equivalent requirement that shareholders get to vote on that reporting. Nevertheless, EU member states may request a shareholder vote in national regulations when implementing CSRD.

Currently, Spain stands as the only EU country that has given shareholders a regular vote on non-financial reporting. Yet there are differences between the Swiss and Spanish reporting requirements. Whereas Spanish companies must comply with the European Commission’s guidance and with GRI standards, the Swiss CO provides more flexibility to companies in selecting their reporting framework. Additionally, whereas external assurance of non-financial information is mandatory in Spain, it is currently not a legal requirement in Switzerland (this may be a moot point — approximately 95% of Swiss blue-chip companies obtained some level of external assurance on non-financial information produced for fiscal year 2022). Lastly, while Swiss law does not mandate for the vote to be binding or advisory, in Spain the shareholder vote on the non-financial report is binding.

Glass Lewis Policy

Our 2024 policy guidelines for Continental Europe and Switzerland have been updated to include a section on the assessment of proposals requesting shareholder approval of a company’s non-financial reporting.
Glass Lewis will generally support proposals to approve a company’s non-financial reporting, unless any of the following apply: (i) the company has failed to make the report publicly-available with sufficient time for shareholder review prior to the general meeting; (ii) the company has failed to provide a sufficient response to material controversies in its reporting; (iii) there are material concerns regarding the completeness and/or quality of the reporting; or (iv) the company is listed on a blue-chip or mid-cap index and has failed to disclose its Scope 1 and 2 emissions.

Looking at the past proxy season, Swiss blue-chips seem on a good path to face the new reporting challenges ahead – proxy season 2024 will be the testing ground for how effective the market will be in presenting non-financial information that meets shareholders’ expectations.