Mar 2023

Switzerland

Law Over Borders Comparative Guide:

Environmental, Social & Governance

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1 . How is “ESG” in your jurisdiction defined in a corporate/commercial context, and what are its major elements?

Switzerland follows the United Nations’ definition with regard to the scope of ESG and defined sustainability goals. The focus is on diligence and reporting obligations. In Switzerland, financial institutions, commodity traders, and energy providers are the most affected industry players and, therefore, have the most specific obligations regarding ESG. The emphasis is on sustainable business, as well as diversity and equal treatment. Switzerland has always been committed to human rights and fair working conditions.

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2 . What, if any, are the major laws/regulations in your jurisdiction specifically related to ESG?

On January 1, 2021, Switzerland introduced its first complement to the Swiss Code of Obligation, compelling companies to have a certain gender representation on the board of directors and in the executive management, or to explain why the required representation has not been reached. On January 1, 2022, further complements to the Code of Obligation were made. These include:

  • provisions on transparency on non-financial matters (Art. 964a – 964c; similar to the EU’s Sustainable Disclosure Regulations); 
  • provisions on transparency in raw material companies (Art. 964d – 964i); and
  • provisions on due diligence and transparency in relation to minerals and metals from conflict-affected areas and child labour (Art. 964j – 964l), which is supplemented by a respective ordinance detailing companies’ obligation. 

Further regulations are expected to come into force in 2023, including the ordinance detailing large companies’ reporting obligations on transparency on sustainability, which are based on the Task Force on Climate-Related Financial Disclosures standard.  

Furthermore, Swiss-based financial institutions are, or will regularly be, directly or indirectly affected by EU regulations and directives, including for example:

  • Alternative Investment Fund Managers Directive (AIFMD);
  • Undertakings for Collective Investment in Transferable Securities (UCITS) Directive;
  • Markets in Financial Instruments Directive (MiFID II);
  • Sustainable Finance Disclosure Regulation (SFDR); and 
  • Insurance Distribution Directive (IDD). 
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3 . What other laws/regulations in your jurisdiction touch on ESG themes?

Switzerland’s general regulations touch on ESG themes in a wider sense. Switzerland’s Anti-Money Laundering Act (AMLA) applies to a wide range of financial intermediaries (including companies outside the scope of the financial market), which ensures the combating of money laundering and terrorist financing not only for Swiss-based companies but also for companies doing business via Switzerland or with Swiss-based companies. 

Furthermore, Switzerland has enacted severe anti-bribery and corruption laws. Such provisions are not only to be found in the Swiss Criminal Code but also in the Swiss Federal Act against Unfair Competition. Moreover, the latter contains further criminal provisions that companies or customers can make use of where a competitor or company has violated fair competition rules. 

The purpose of the Federal Act on Cartels and other Restraints of Competition follows a similar direction. By this act, companies are compelled to fair competition in the interests of a liberal market economy.

Additionally, Switzerland has implemented several consumer protection acts. This combination provides consumers with an advantage by, for example, enabling them to claim damages against a service provider. 

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4 . What, if any, litigation or enforcement activity has your jurisdiction seen related to ESG?

To date, there are practically no judgments in Switzerland with direct reference to ESG. However, the first lawsuits are already pending. The most prominent is the climate lawsuit of the “Klima Seniorinnen Schweiz” (climate seniors) against Switzerland, which is now pending before the European Court of Human Rights. 

In recent years, the Swiss National Contact Point (NCP) for the OECD Guidelines for Multinational Enterprises has conducted dozens of mediation proceedings. 

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5 . What are the major non-law/regulatory drivers of ESG trends and developments in your jurisdiction?

Soft non-binding laws

Switzerland is very positive about soft laws but does not force companies to apply them. In most cases, companies are offered a right of choice. For example, the ordinance detailing companies’ obligations with regard to due diligence and transparency in relation to minerals and metals from conflict-affected areas and child labour states that companies do not need to report on the matter according to the provision of the Code of Obligation and the ordinance if they do already report in accordance to an equivalent and recognised soft law (e.g., under the OECD Guidelines for Multinational Enterprises).  

Stakeholders

Switzerland’s political landscape consists of various diverse parties with different objectives. However, sustainability has become relevant in almost every party. This is obviously a reflection of the public and NGOs that push for a sustainable future.  

This is also reflected by retail and institutional investors. Whereas retail investors predominantly only invest in sustainable products if the promised return seems acceptable, institutional investors have started to invest in sustainable products even if the expected return is not very satisfactory. 

Moreover, the “trend to sustainability” also affect companies’ corporate agendas and strategies (e.g., Net Zero; circular economy; energy reduction). Companies are more likely nowadays to commit to soft law promoting sustainability, which in turn makes them more attractive to the general public.

On the other hand, companies are affected by the government push toward sustainability and ESG in its regulations. Also, the Swiss Financial Market Supervisory Authority tracks greenwashing risks and has published guidance on preventing and combating greenwashing. However, as of now, Switzerland lacks specific regulatory requirements for sustainability-related financial products and services, which increases the risk of greenwashing. To avoid any proceedings, Swiss financial institutions may, therefore, choose to comply with EU regulations. 

National Contact Point (NCPs)

The Swiss National Contact Point (NCP) for the OECD Guidelines for Multinational Enterprises promotes the observance of the Guidelines and discusses with the parties concerned all relevant issues to contribute to the resolution of any problems that might arise. This is usually done through mediation. In Switzerland, the NCP is located at the State Secretariat of Economic Affairs (SECO) at the International Investment and Multinational Enterprises unit.

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6 . Are the laws, regulations and obligations highlighted in Question 2 primarily related to corporate disclosure?

As of now, Swiss regulations do not directly prescribe ESG-related processes that companies would have to adhere to. Rather, the provisions governing ESG goals and obligations are provisions with reporting obligations, compelling companies to report on specific matters. However, Swiss law regulates the content and method by which companies have to report on these specific matters; companies are indirectly forced to implement a corresponding “measuring process” in order to fulfil their reporting obligations.  

Reporting

Companies must generally make most of the reporting obligations in their annual report. However, there are also reporting obligations that force companies to prepare separate reports on an annual basis. These include, for example, the reporting obligation on non-financial matters. Nonetheless, financial intermediaries voluntarily report on a quarterly basis to keep their investors or clients up to date. The reports are published on the company’s website. 

For example, the report on non-financial matters must include:

  1. a description of the business model; 
  2. a description of the policies adopted in relation to the matters referred to in (a), including the due diligence applied; 
  3. a presentation of the measures taken to implement these policies and an assessment of the effectiveness of these measures; 
  4. a description of the main risk related to the matters referred to in (a) and how the undertaking is dealing with this risk; in particular, this description must cover risks that arise from the undertaking’s own business operations, and provided this is relevant and proportionate, that arise from its business relationships, products, or services; and
  5. the main performance indicators for the undertaking’s activities in relation to the matters referred to in (a).
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7 . Which sectors are most impacted by ESG in your jurisdiction? How significant is ESG investment in your jurisdiction?

Private equity/hedge funds/asset managers/bank

In the Swiss private equity sector, the risk-return rate is the most decisive criteria for an investment decision. However, there are trends that may indicate that institutional investors are foregoing a good risk-return ratio in favour of sustainability, or that sustainability is becoming an increasingly important factor in the investment decision. This is further indicated by the growing number of investments in developing countries or investments with the objective of financial inclusion. Eventually, the markets (and with that, investors) influence the decision of whether a “green” investment is more favourable than a high return on the investment. The same applies to hedge funds, asset managers, banks, and other financial institutions.

Nonetheless, all these financial institutions must comply with financial market regulations. In this respect, financial institutions must comply with various information and transparency obligations and, in some circumstances, disclose what goals their product pursues. The objective of financial market laws is to ensure that investors are well informed and that they can make informed and responsible investment decisions on their own. 

Small and medium-sized enterprises (SMEs)

Most companies in Switzerland are SMEs. Therefore, Swiss regulations provide many relief measures for SMEs so that they are not unduly affected by certain reporting obligations or are affected to a lesser extent. Nonetheless, most SMEs pay great importance to ESG matters. Thus, the overall commitment to ESG in Switzerland can be described as high. 

Travel and automobile industry 

Switzerland might have one of the best train systems in the world. Lots of people travel to work by train or bike. In recent years, the amount of electric or hybrid cars has increased as well. 

Energy industry 

The promotion of sustainable energy is high on Switzerland’s agenda. Many private households have solar panels on their roofs, new constructions are not allowed to build-in oil or gas heating, and nuclear power plants shall be taken off the grid by 2050. In this regard, Switzerland introduced its Energy Strategy 2050, which contains a step-by-step plan on how Switzerland plans to get away from fossil fuels and nuclear energy over to sustainable energy. At the same time, the strategy contributes to reducing Switzerland’s energy-related environmental impact. 

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8 . What are the trends in your jurisdiction regarding ESG governance?

Sustainability is at the heart of many investment decisions. Financial products with an ESG focus are showing major asset growth worldwide–a trend that is also impressively reflected in the figures in Switzerland: the market for sustainable investments has increased 17-fold since 2010. 

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9 . To what extent are ESG ratings or ESG benchmarks relied upon in your jurisdiction?

ESG rating agencies 

Institutional investors, asset managers, financial institutions, and other stakeholders are increasingly using ESG ratings and rankings to evaluate and measure companies' companies’ sustainability performance over time and against their peers. Specifically, the following ESG rating and ranking agencies are commonly used: Bloomberg, Refinitive, Sustainalytics, MSCI, TruValue Labs (FactSet), ISS ESG, and V.E. (formerly known as Vigeo Eiris, a subsidiary of Moody's Corporation). 

ESG benchmarks 

For a long time, there was no recognized ESG equity benchmark for the Swiss stock market. Today, the Swiss Performance Index (SPI) is the basis of the new ESG indices. Furthermore, certain banks have defined sector-specific sustainability criteria for their sustainable real estate products. The ESG benchmark for direct and indirect real estate investments is the Global Real Estate Sustainability Benchmark (GRESB), which analyzes and assesses ESG performance in annual evaluations. 

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10 . What is the role of the private markets versus public markets in driving ESG developments in your jurisdiction?

Private companies 

Consumer expectations have changed significantly in Switzerland. Consumers expect private companies to address sustainability and to develop goals and a strategy on how they plan to achieve these sustainability goals. Larger companies have committed to reducing their CO2-emissions by sourcing electricity from renewable energy sources, sourcing local raw materials, or moving into e-mobility. 

Public companies 

Many Swiss public multinational companies are members of international initiatives and report according to the GRI standard or have implemented the WEF ESG reporting metrics.

Government-owned organizations 

Government-owned companies from various economic sectors have committed to reducing their CO2 footprint by, for example, replacing old oil heating systems with climate-friendly heating systems or purchasing electricity from renewable sources. Public tenders include sustainability criteria (green procurement).

ESG agenda 

The Swiss Government has not issued an ESG legislative agenda but pushes self-regulation. However, there are many ESG initiatives on all levels (government, administration, politics, and private). The Swiss Government has issued the “Energy Strategy 2050” and the CSR action plan 2020-2023.

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11 . What are the major challenges in terms of compliance for companies under ESG obligations?

ESG criticism is primarily triggered by the various approaches and methods used to assess sustainability. So far, the term sustainability has not been clearly defined in the financial industry and, thus, fund providers have a free hand in applying the criteria–there is no uniform standard assessment system. This lack of legal regulation means that providers can set the criteria themselves. The lack of regulation on what sustainable investments are–or are not–makes it impossible for investors who truly want to invest green to rely on ESG ratings. In this case, it must always be expected that certain criteria are not completely fulfilled or not even fulfilled at all. In addition, the ratings of the individual agencies often differ greatly from one another. In the banking business, for example, the advisory process is central. Therefore, this is one of the biggest levers for avoiding greenwashing. Thus, the Swiss Bankers Association has developed a “Guideline for the inclusion of ESG criteria in the advisory process for private clients.” This is linked to the ongoing training of employees. Individual institutions can implement the guidelines individually according to their respective size, structure, complexity, business activities, and risks. However, greenwashing is also forbidden by the law against unfair competition. 

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12 . What information sources are most relevant for ESG considerations in your jurisdiction?

Depending on the industry, there are different points of contact companies could engage with to answer ESG-specific questions. For example, different departments of the Federal Council publish information regarding ESG on their website. Financial institutions can rely on the respective information published by the Swiss Financial Market Supervisory Authority or by Self-Regulatory Organisations, as well as industry associations. 

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13 . Has your jurisdiction developed a Taxonomy related to ESG?

In its report of June 24, 2020, the Swiss Federal Council concluded that there is currently no need for regulation of a state taxonomy. However, further developments in the industry and internationally, particularly in the EU, will be closely monitored and included in further in-depth work. 

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14 . What does the future hold for ESG in your jurisdiction?

For companies, commitment to ESG has so far been voluntary. But the pressure to comply with ESG standards will increase in the future. Due to the increased public and political interest in the topic of sustainability, ESG criteria are now increasingly being incorporated into legislation. Thus, ESG is increasingly moving from a compliance issue–in the sense of a voluntary commitment–to a legal issue. The requirements for companies to comply with ESG standards will continue to rise steadily in the future. There is a clear trend: ESG is coming faster, more comprehensively, and more forcefully than was foreseeable even a few years ago. The trend is picking up speed. A look at other European countries shows us here in Switzerland: the corporate responsibility initiative was just the beginning.

In addition, sustainable investments are increasingly becoming the norm. 

EXPERT ANALYSIS

Chapters

Argentina

Guillermo Jorge
Pablo Crimer

Bahamas

Vanessa M. R. Hall

Brazil

Carolina Queiroga Nogueira
Thiago José da Silva

Chile

Juan Antonio Parodi
Raúl Álvarez
Verónica Cuadra

China

Gary Gao

European Union

Patricia Volhard
Geoffrey Burgess
Jin-Hyuk Jang

Finland

Anniina Järvinen
Annika Schauman
Johanna Vanninen
Laura Sainio
Tero Pikkarainen

Germany

Christina Heil
Jin-Hyuk Jang
Patricia Volhard

Italy

Fabio Gallo Perozzi
Federico Longo
Giuseppe Taffari
Roberto Randazzo

Japan

Yasuyuki Kuribayashi
Yuko Toyoda

Mexico

Diego Sierra
Edmond Frederic Grieger
Elias Jalife
Luis Burgueño
Pablo Jiménez

Netherlands

Davine Roessingh
Dennis Horeman
Jasper van Uden

Peru

Claudio Ferrero Merino
Francisco Tong
Tomás Denegri Vargas
Ursula Zavala

South Korea

Curie Lee
Eugenia Stavropoulou
Hye Sung Kim
Sae Youn Kim

Sweden

Emma Greiff
Jenny Lundberg
Joel Montin
Rezan Akkurt

United Kingdom

Jannis Bille
Rebecca Perlman
Sebastian Morton
Silke Goldberg

United States

Andrew M. Levine
Caroline N. Swett
Ulysses Smith

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