New reporting, transparency, and due diligence obligations under arts. 964a et seqq. of the Swiss Code of Obligations – an overview and comparison with the German Supply Chain Law

Joëlle Marciano
Joëlle Marciano

On January 1, 2022, the new reporting, transparency, and due diligence obligations under arts. 964a et seqq. CO came into force as a result of the indirect counter-proposal of the rejected Responsible Business Initiative. The provisions will apply for the first time to the 2023 financial year. Lex Futura explains the most important provisions and company-internal responsibilities.

The new obligations of arts. 964a et seqq. CO are divided into (i) reporting obligations on non-financial matters, and (ii) due diligence and transparency obligations in relation to minerals and metals from conflict-affected areas and child labor. The latter were further specified by the Federal Council in the Ordinance on Due Diligence and Transparency for Minerals and Metals from Conflict Areas and Child Labor.

Reporting on Non-Financial Matters

The obligation on reporting on non-financial matters applies to “companies of public interest” as defined in art. 2 letter c of the Auditor Oversight Act, i.e. public companies or companies supervised by the Swiss Financial Market Supervisory Authority (FINMA) that exceed two of the following thresholds: 500 full-time positions, a balance sheet of 20 million francs, and a sales revenue of 40 million francs. If a company meets this definition, it must issue an annual report (usually based on international standards, e.g. OECD guidelines) with a certain content. The report shall cover environmental matters, social issues, employee-related issues, respect for human rights, and combating corruption.

This annual report shall be adopted by the Board of Directors, approved by the General Assembly, and subsequently published online for a period of at least ten years.

Due Diligence and Transparency in relation to Minerals and Metals from Conflict-Affected Areas and Child Labor

The obligations of due diligence in the supply chain and report thereon regarding minerals and metals from conflict-affected areas apply to Swiss undertakings if they place in free circulation or process in Switzerland minerals containing tin, tantalum, tungsten or gold or metals from conflict-affected and high-risk areas (subject to certain import- and processing quantity exceptions).

The obligations of due diligence in the supply chain and report thereon regarding child labor apply to Swiss undertakings if they offer products or services in relation to which there is a reasonable suspicion that they have been manufactured or provided using child labor. SMEs and low-risk companies are exempt from these obligations, provided that the use of child labor is not obvious.

In principle, all Swiss companies can potentially be affected by these obligations.

Companies affected by these two areas are required to implement a management system that includes the following elements: (i) a supply chain policy for the products and services concerned, (ii) a system by which the supply chain be traced, (iii) a notification procedure in the form of an early warning mechanism for risk identification (all interested parties must be able to easily communicate justified concerns), and (iv) a risk management plan (including identification, assessment and minimization of any risks, using a risk-based approach).

In our opinion, it is the company’s procurement department that is responsible for this management system since it has the necessary information and the issues are part of the procurement process.

Compliance with the due diligence obligations regarding minerals and metals must be audited annually by a certified auditing expert and reported to the Board of Directors. No external audit is required for compliance with due diligence obligations regarding child labor.

In addition, the Board of Directors must prepare an annual report on the compliance with these due diligence obligations and publish it online within six months of the end of the financial year for a duration of at least ten years. If a company purchases products and services from companies which themselves issue a report, no further report needs to be issued for the respective products and services.

If a company is also required to issue a report on non-financial matters, due diligence reporting on minerals/metals and child labor may be included in that same report. In addition, there are certain provisions regarding the consolidated reporting if a group company abroad already prepares an equivalent report.

These new obligations do not entail an absolute ban on the import of minerals and metals from conflict-affected and high-risk areas or on products or services with reasonable suspicion of child labor. The provisions rather aim at ensuring that consumers, providers of equity and debt capital, as well as parties and organizations of civil society are adequately informed and provided with the necessary information to form the sanctioning body.

Sanctioning

The new CO provisions came into force together with new provisions of the Swiss Criminal Code (CC). According to the new art. 325ter CC, the intentional failure to make the required reports, the provision of false information in the reports, or the failure to comply with the statutory obligation to retain and document the reports may result in a fine of up to 100’00 francs. In cases of negligence, the fine may be up to 50’000 francs.

No new civil liability rules have been introduced. However, measures to comply with the new due diligence obligations are part of a functioning compliance management system.

A comparative outlook: The German Supply Chain Law

Compliance with certain reporting and due diligence obligations has also been a topic beyond Swiss borders. Germany has recently also adopted its Supply Chain Law (“Lieferkettensorgfaltspflichtengesetz”), which will be applied starting from 2023. The Law will for the first time introduce clear requirements for corporate due diligence in connection with supply chains.

Initially, the Law will only apply to companies that i) have their head office, principal place of business, administrative headquarters, registered office or branch office in Germany, and ii) generally employ at least 3’000 employees in Germany, including employees posted abroad.

From 2024, it will also apply to companies with at least 1’000 employees in Germany. SMEs might be affected indirectly, as larger companies that fall within the scope of the Law will probably contractually pass on their obligations to their suppliers as preventive measures.

The core of the due diligence obligations under the Law includes the establishment of a risk management system to identify, avoid or minimize the risks of human rights violations and damage to the environment. Part of this risk management is also a risk analysis, which covers the company’s own business operations as well as those of its direct suppliers. Indirect suppliers must only be included in this process if the company has substantiated knowledge of violations. Moreover, companies subject to the Law must also set up a grievance system and implement prevention and remedial measures.

In cases of infringement, companies with an annual revenue of more than EUR 400 million may be submitted to a sanction of up to 2% of their global annual revenue. Under certain circumstances, companies may also be excluded from public procurement as a sanction. Sanctions are thus stricter than the ones provided under the Swiss regulations. Overall, the German Supply Chain Law takes a more individualistic, case-by-case approach: the obligations are to be fulfilled in a “reasonable manner” – leaving a certain amount of leeway. The specific ability of a company to exert influence as well as its position in the market thus have an influence on how strict it must oblige to the due diligence requirements. The Swiss regulations, on the other hand, regulate the due diligence obligations in a more uniform manner. Overall, the German Supply Chain Law seems to go further and provide possibilities for stricter sanctioning than the Swiss regulations.

Companies are therefore advised to check whether they are affected by the new regulations regarding the reporting on non-financial matters and the due diligence and transparency obligations with regard to minerals and metals from conflict-affected areas and child labor, and, if this is the case, to identify the organization and responsibility within the company.

 
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