Swiss Federal Council adapts Climate Reporting Ordinance to target new entities in non-financial matters reporting
On 6 December 2024, the Swiss Federal Council opened consultations on a revision of scope of the Ordinance on climate reporting on climate issues. This Climate Reporting Ordinance, which has been in force since 1 January 2024, will be amended to reflect the last international and European developments. The consultation procedure will last until 21 March 2025 and the revision is expected to enter into force on 1 January 2026.
Recognition of new international and European standards
The Climate Reporting Ordinance stipulates that in-scope companies must draw up a report on climate issues when and if implementing the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). As international standards incorporate these recommendations, the TCFD is no longer applicable. The revised Climate Reporting Ordinance states that the obligation to report on climate issues will be deemed met if the report complies with a recognised international standard or the equivalent EU standard.
Concretely, this means that the standards of the International Sustainability Standards Board (ISSB) will be recognised in Switzerland. This also means that the European Sustainability Reporting Standards (ESRS) E1, the standards applied in the EU that define the characteristics and general information to be included in the report (e.g. policy, measures and objectives), and the ESRS E2 on the structure and content of the thematic ESRS will be recognised as IISB standards in Switzerland.
Transition roadmaps requirements
The consultation draft also sets out minimum requirements for the preparation of roadmaps also referred to as "transition plans" in which companies describe how they intend to redirect their financial flows to achieve the goal of net zero emissions by 2050. Currently, some companies have voluntarily set a net zero target by applying the Science Based Targets initiative (SBTi) or the principles of the Glasgow Financial Alliance for Net Zero (GFANZ).
These roadmaps will be compliant with the requirements set out in the Federal Act of 30 September 2022 on Climate Protection Objectives, Innovation and Enhanced Energy Security. Given the nature of their activities, companies active in the financial sector will have to meet different minimum requirements than those of companies in the real economy.
Where feasible and appropriate, the roadmaps should include scientifically based quantitative reduction targets by asset class and sector for all significant greenhouse gas (GHG) emissions and targets for the development of climate-friendly technologies.
The roadmaps must be updated in the event of any significant change, but periodic updates (e.g. on an annual basis) should not be prescribed. In general, it is recommended that a reduction trajectory be defined that includes intermediate targets for at least 2030 and 2040 that are compatible with Switzerland's climate objectives, and that shows a linear decrease in 2030, 2040 and 2050 objectives. For certain asset categories, it may also be advisable to set intermediate targets for 2035 and 2045, depending on the sector.
According to the Swiss Federal Council, when drawing up their roadmaps, companies can refer to international best practices (e.g. the work of the Transition Plan Taskforce or TPT). A roadmap should also provide, where possible and appropriate, forward-looking information on planned actions, particularly in the areas of governance, strategy, resources and risk management.
Personal scope of application extension
The provisions of the Climate Reporting Ordinance apply to companies that are required to draw up an annual report on non-financial issues in accordance with the Swiss Code of Obligations (CO). Importantly, the obligation to report on non-financial matters only applies to large Swiss companies, which are defined as companies of "public interest" within the meaning of the article 2(c) of the Swiss Audit Oversight Act. This definition includes public companies and companies supervised by the Swiss Financial Market Supervisory Authority (FINMA), which together, along with controlled companies in Switzerland and abroad, have at least 500 FTEs annually on average and total balance sheet assets in excess of CHF 20 million or revenues in excess of CHF 40 million.
The current revision of the provisions of the CO on transparency in non-financial matters plans to extend their personal scope, extending it to a larger number of companies in a manner like the EU Corporate Sustainability Reporting Directive (CSRD). Once the CO revision comes into force, the extended scope will automatically be reflected in the Climate Reporting Ordinance. The exemptions set out in the CO should also be reflected in the scope of the Climate Reporting Ordinance.
As a reminder, the alignment on the EU CSRD on the non-financial matters reporting set out in the CO and proposed by the Swiss Federal Council on 26 June 2024 will include in its reporting scope both non-financial matters and climate issues, such as the following:
- all companies of public interest or supervised by the Swiss Financial Market Supervisory Authority (FINMA) regardless of their size (subject to an exception for small companies, see below);
- companies that reach two of the following three thresholds that now fall into the scope of the reporting obligations: (i) 250 FTEs, (ii) total balance sheet assets in excess of 25 million, or (iii) revenues in excess of CHF 50 million, regardless of whether they are listed or supervised by FINMA in two successive financial years; and
- companies required to prepare a consolidated financial statement in accordance with the CO and, together with the companies they control, exceed two of the above three thresholds in two successive financial years.
- The following companies will be exempt from the obligation to publish a sustainability report:
- companies that are controlled by another company that is subject to the obligation to prepare a sustainability report or must prepare a report in accordance with foreign law;
- small companies if, alone or together with the companies they control, they do not exceed more than one of the following thresholds over two successive financial years: (i) balance sheet total of CHF 450,000, (ii) revenues of CHF 900,000, or (iii) ten FTEs on annual average.
Outlook
The revision of the Climate Reporting Ordinance is another step forward for Switzerland in its goal to align Swiss sustainability reporting requirements with international standards and EU rules. If the Climate Report Ordinance and the revision of the CO are adopted in their current form, it remains to be seen what impact these new requirements will have on the new concerned entities (including smaller companies), particularly at the operational level.
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