Swiss companies should tighten their due diligence obligations

The legal provisions for compliance with environmental and human rights should be tightened for Swiss companies. This is what the Ethos Foundation is demanding from Parliament and the Federal Council. Behind it are 21 institutional investors.

The Ethos Foundation and 21 investors representing a combined CHF 459 billion in assets under management sent a letter to the members of the National Council's Legal Affairs Committee on March 20, 2023. In it, they call on them to adopt comprehensive legislation for Swiss-based companies to respect human rights and protect the environment. Co-signers include ACTIAM, AkademikerPension, Alternative Bank Switzerland, Arete Ethik Invest AG, Boston Common Asset Management, de Pury Pictet Turrettini & Cie, Domini Impact Investments, LLC, ECOFI Investissements, EFG Asset Management, Ethius Invest, Etica Funds- Responsible Investments, Fondation Ethos, Forma Futura, Inyova AG, Natural Investments, PGGM Investments, Seventh Generation Interfaith Coalition for Responsible Investment, Shareholders for Change, Storebrand Asset Management, Unigestion and Vancity Investment Management.

Switzerland lags behind in terms of regulation

For Ethos and the co-signatories, it is important that Switzerland adapts its legislation, especially considering international regulatory developments. For example, the European Commission has drafted a new directive to introduce enhanced corporate due diligence in sustainability. The EU text is in line with the demands of the Corporate Responsibility Initiative, which was voted on in November 2020. The initiative was supported by most of the population, but ultimately rejected because most cantons did not support it.

The counter-proposal to the initiative came into force and led to the inclusion of new provisions in the Code of Obligations concerning companies' compliance with human rights and environmental protection. However, these new provisions are limited to child labor and minerals and metals from conflict areas, which ultimately affects only a very small number of companies.

Investors have three main requirements

Since 2020, the Federal Council has repeatedly confirmed its will to harmonize Swiss legislation with that of its neighboring countries. Against this background, Ethos and the co-signatories call for the elaboration of a comprehensive legislation on corporate due diligence in the field of environment and human rights. Their demand includes three points:

  1. The need for Switzerland to comply with international standards (UN Guiding Principles, OECD Guidelines) and to ensure that corporate due diligence covers the entire value chain, is risk-based and carried out on an ongoing basis.
  2. The establishment of an independent supervisory authority with wide-ranging powers (along the lines of the draft EU Directive) responsible for monitoring and, where appropriate, imposing effective but proportionate sanctions on companies, including fines and compliance orders.
  3. The introduction of civil liability, aligned with Swiss law, for human rights or environmental harm that could have been avoided if the company had applied appropriate and reasonable due diligence. Thus, companies should be held liable for damage caused by their subsidiaries and partners in the supply chain, regardless of where in the world they are located and according to the degree of their involvement in the adverse effect.

Investment portfolios of Swiss pension funds could lose value

As Vincent Kaufmann, Director of Ethos, points out, reputational damage and operational difficulties due to human rights abuses and environmental pollution in supply chains could have a significant negative financial impact on companies included in the investment portfolios of Swiss pension funds. And he emphasizes, "Comprehensive due diligence requirements are therefore not only good for companies, but also for institutional investors and the economy as a whole."

Swiss financial center could suffer competitive disadvantages

For Ethos and the co-signatories, this could result in a competitive disadvantage for the Swiss financial center if Switzerland does not quickly adapt its legislation. This is because international investors now expect companies to comply with the highest standards of human rights and environmental protection.

About Ethos

Ethos, Swiss Foundation for Sustainable Development, brings together 246 pension funds and charitable foundations. It was founded in 1997 to promote sustainable investment and is committed to a stable and healthy economic environment that safeguards the interests of society as a whole in the long term.