Down but not defeated: What’s next for Swiss Human Rights Due Diligence?

The Swiss Responsible Business Initiative was recently rejected in a nationwide referendum, but that is not the end of the story with less onerous reporting obligations still expected to become law.

While the Responsible Business Initiative sought to introduce mandatory human rights and environmental due diligence obligations for companies headquartered in Switzerland received a majority of the popular vote (i.e. 50.7%), it did not obtain the required support in the majority of Swiss cantons. The Initiative included civil liability provisions that would have made Swiss parent companies liable for human rights and environmental standards violations caused by their subsidiaries and controlled suppliers abroad (please see our earlier blog for further information). Now, instead, a softened counter-proposal that was adopted by the Swiss parliament in June 2020, which does not provide for any civil liability, will most likely enter into force unless another referendum against this counter-proposal is requested.

New Swiss reporting and due diligence obligations based on EU law

The current counter-proposal largely mirrors corresponding legislation at the EU level. Like the 2014 EU Non-Financial Reporting Directive, the proposed legislation imposes reporting obligations in relation to non-financial information, including environmental, social and employee-related, anti-corruption and human rights standards, on so called “companies of public interest” which have more than 500 employees and either exceed a balance sheet total of CHF 20 Mio or an annual turnover of CHF 40 Mio.

Similar to the EU Conflict Minerals Regulation (EU Regulation 2017/821), that will enter into force in January 2021 and will be directly applicable, the counter-proposal sets out due diligence and reporting obligations for importers of minerals or metals containing tin, tantalum, tungsten or gold from conflict or high-risk areas. The counter-proposal – like the Dutch Child Labour Due Diligence Law – also seeks to introduce child labour due diligence and reporting obligations. Certain exceptions will be available for small and medium sized enterprises.

Anyone who does not comply with the reporting obligations or provides false statements will be subject to fines of up to CHF 100,000. This also applies to the company’s management.

How to Prepare: impact of upcoming EU developments for Swiss multinational companies

The rejection of the Swiss Responsible Business Initiative means that there will be no law creating direct liability in Switzerland for Swiss parent companies for violations of human rights and environmental standards caused by their (foreign) subsidiaries or economically controlled suppliers.

While the adoption of the Swiss Responsible Business Initiative would have led to Switzerland being the second European country – after France – to adopt comprehensive mandatory human rights due diligence standards, Switzerland will now primarily align with existing EU legislation.

In preparation for the counter-proposal, Swiss companies should start setting adequate measures to comply with the new reporting obligations. In addition, Swiss undertakings that operate in the minerals and metals sectors should start establishing adequate compliance management systems to monitor their supply chains risks. Moreover, considering that the EU Commission is expected to publish a draft mandatory human rights and environmental due diligence law in the first half of 2021, Swiss companies with EU business activities are well advised to start taking first preparatory steps and bring existing compliance systems in line with comprehensive human rights and environmental standards. This is due to the fact that pursuant to the first draft of such an EU directive – proposed to the European Commission by the European Parliament – its regulations are likely to have a wide scope of application. It is expected to cover all companies that are either governed by the law of an EU Member State or are established in the EU or companies that operate in the EU’s internal market.

Despite the fact that it was ultimately rejected, the large support for the Swiss Responsible Business Initiative among the Swiss population could also send encouraging signals to the EU and German lawmakers, supporting their current mandatory human rights due diligence initiatives.