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Newsletter 27 Jan 2025 · Switzerland

ESG Regulation in Switzerland - Review 2024 and Outlook 2025

9 min read

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2024 marked the first reporting year under Switzerland's new regime on non-financial reporting as well as due diligence and transparency in the areas of conflict minerals and metals and child labour. As a result, many companies have in the past year increasingly engaged with these new ESG regulations. With reforms and initiatives on the horizon, 2025 is also likely to be characterized by developments in the area of sustainable corporate governance. Companies are and will remain challenged to prepare for the rapidly changing regulations with a forward-looking and holistic ESG strategy.

Review 2024: Establishment of reporting and continuation of reforms

The past year was characterized by many challenges and developments in the area of sustainable corporate governance. The obligations on non-financial reporting and due diligence and transparency in the areas of conflict minerals and metals and child labour, which were introduced as the result of an indirect counter-proposal to the popular initiative "For Responsible Business - for the Protection of People and the Environment" (Responsible Business Initiative I), came into force on 1 January 2022. However, they applied for the first time to financial years that began on or after 1 January 2023, with the first reports to be published electronically within six months of the end of the financial year. Many companies thus had to report in 2024 for the first time under the new Swiss ESG regime (see "Companies are challenged: The complexity of ESG regulation").

This first-time reporting obligation has prompted many companies to take a closer look at the scope and requirements of the new regulations. However, practical implementation is proving challenging as many questions remain unanswered and practical guidance from the authorities is still largely lacking. Two challenges should be highlighted: The first is the need to collect, process and analyse large volumes of data from multiple sources in order to assess supply chains and produce reports - a process that is new to many companies, at least to this extent, and will remain difficult without automation. There are a number of software providers that can assist. However, it is up to each company to decide what data to collect, to what extent this should be done and how to integrate it into its own control system. Secondly, a focus on Swiss requirements is likely to be too narrow for international groups, but also for many Swiss companies: Particularly in view of the EU Corporate Sustainability Due Diligence Directive (CSDDD), which came into force on 26 July 2024 and is currently being transposed into national law in the EU member states, a transnational, uniform ESG strategy is recommended for many companies (see "What does the EU Corporate Sustainability Due Diligence Directive (CSDDD) mean for Swiss companies?" However, the development of such a transnational ESG strategy can be challenging, especially as Swiss requirements are not yet sufficiently harmonised with international standards (keyword: Swiss Finish). 

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Q&A CSDDD

Moreover, the current structure of the new Swiss ESG regulation is by no means set in stone: barely in force, the Swiss Federal Council has already announced a revision of the still new provisions on non-financial reporting. The Federal Council's preliminary draft provides for a significant expansion of the scope of non-financial reporting. At the same time, the requirements for the content of the report are likely to be increased considerably in some areas and reports to be reviewed by auditors. The Federal Council's stated aim is to create internationally harmonized regulations, in particular through approximation to the EU Directive on Sustainability Reporting (CSRD). In addition, the Federal Council intends to analyze the impact of the new EU rules on due diligence obligations (CSDDD) and then decide how to proceed (see Legal Flash - Planned amendment of the provisions on non-financial reporting).

At the same time, climate protection also gained in importance in the context of legislative revisions/amendments in Switzerland: in addition to the approval by the Swiss population of the Federal Act on the Security of Electricity Supply with Renewable Energies, which provides for various measures to secure Switzerland's electricity supply with renewable energies (see Federal Act on the Security of Electricity Supply with Renewable Energies - What's changing?), preparations for the entry into force of the Climate and Innovation Act (CIA) and the revision of the CO2 Act were also in full swing. The CIA and its implementing provisions - in conjunction with the revised CO2 Act - enshrine the goal of net zero emissions (climate neutrality) for Switzerland by 2050 at the national level. According to the CIA, also companies must achieve net zero emissions by 2050 at the latest – in principle regardless of whether they are subject to non-financial reporting or not. To achieve this goal, companies and industry sectors may - but are not required to - develop roadmaps, with the federal government providing basic principles, standards and technical advice to companies and industry sectors that develop such roadmaps by 2029. Although the obligations under the CIA apply independently of any non-financial reporting obligations, there is an increasing link between the requirements of the CIA and non-financial reporting: Shortly before the end of 2024, the Federal Council opened consultation on the amendment of the Ordinance on Climate Disclosures (see press release of 6 December 2024). Among other things, the draft ordinance provides for a link to the net-zero target in the CIA and the roadmaps provided for therein. While these are only recommended for companies under the CIA, the Federal Council proposes that they should soon be mandatory for companies as part of their non-financial reporting, possibly as early as of 2026.

Finally, in the context of the increased focus on climate protection, the European Court of Human Rights (ECHR) ruling of 9 April 2024 in the Verein Klimaseniorinnen (Senior Women for Climate Protection) v. Switzerland case should also be mentioned. In this judgment, the ECHR ruled that Switzerland's climate protection measures were inadequate and violated the human rights of the plaintiff senior citizens. The ruling is highly controversial and is in any case primarily directed at the Swiss state authorities, whereas both the Swiss Federal Council and Parliament are known to be of the opinion that Switzerland has (in the meantime) already taken sufficient measures. Notwithstanding the currently still unclear concrete implications of the ruling, the increased expectations of the ECHR in the area of climate change are also likely to influence - at least implicitly, and possibly unconsciously - the debate on sustainable corporate governance.

Outlook 2025: New challenges through reforms and initiatives

ESG regulation will remain a key issue in 2025. Ongoing reforms in the area of sustainable corporate governance are likely to be fleshed out, particularly with a view to Switzerland's possible convergence with EU requirements, namely the CSDDD. The pressure on the Federal Council and Parliament to follow suit is growing: shortly after the turn of the year, the popular initiative "For Responsible Large Companies - for the Protection of People and the Environment" (Responsible Business Initiative II) was launched. It calls for stricter requirements for Swiss companies and their subsidiaries abroad. The initiative follows on from its predecessor (Responsible Business Initiative I), which was narrowly rejected by a majority of the cantons in 2020, but led to new legislation in the areas of non-financial reporting, conflict minerals/metals and child labour through the indirect counter-proposal. It requires that large companies with their registered office, head office or main branch in Switzerland also comply with due diligence obligations abroad that are necessary to respect internationally recognised human rights and environmental standards. According to the initiative, these companies should also be obliged to reduce their greenhouse gas emissions.

In order to enforce these obligations, the report calls for the creation of an independent supervisory authority that would be able to identify violations and impose sanctions, such as fines based on turnover. Such an supervisory authority would be a first for Switzerland, where existing regulations on non-financial issues, conflict minerals/metals and child labour are currently solely enforced by criminal prosecution authorities. The initiative also calls for clear liability rules for companies in the event of a breach of due diligence obligations. Although it is unclear whether the initiative will be successful and whether it will be accepted by the population, it increases the pressure on the Federal Council and Parliament to further extend ESG obligations in Switzerland.

Furthermore, in the meantime the Swiss electorate clearly rejected the popular initiative "For a responsible economy within planetary boundaries" (Environmental Responsibility Initiative) on 9 February 2025. The initiative would have required economic activities to consume only as many resources and emit only as many pollutants as the natural foundations of life allow. The federal government and the cantons were to ensure compliance with this principle, paying particular attention to social compatibility at home and abroad. They should also ensure that, no later than ten years after the initiative's adoption, the environmental impact of consumption in Switzerland, measured in relation to the Swiss population, no longer exceeds the planetary boundaries. The text of the initiative did not specify any concrete implementation measures. However, if the initiative had been adopted, it is very likely that it would have led to further sustainability obligations for companies.

At the same time, the wind has changed on the other side of the Atlantic with the change of presidency. The trend there is clearly back towards less ESG regulation. It remains to be seen whether and to what extent this trend will spread to Europe, where the political landscape is also in flux. However, it is reasonable to assume that the political authorities in Switzerland will also take this countervailing trend into account when considering the further development of Swiss ESG regulation. Not least because nothing seems to be set in stone in the EU either.

Regardless of what the political authorities and in particular the Swiss voters ultimately decide, sustainability will remain a key issue on the political agenda in 2025. Accordingly, the issue of ESG/sustainable corporate governance will remain highly relevant for Swiss companies in the coming year.

Conclusion: Companies continue to face major challenges in 2025

ESG regulation in Switzerland was a key and dynamic topic last year - and will remain so in the new year. With the first reports under the new legal requirements, the planned reforms for (further) harmonization with international standards, and the launch and coordination of far-reaching initiatives, companies are facing increasingly complex challenges. More than ever, they need to be proactive in addressing sustainability issues, mitigating risks and capitalising on opportunities.

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