Regulatory developments on sustainability in the EU and Switzerland

Overview and comparison of EU directives and Swiss legislation

1. What is the legal situation in Switzerland?

On 29 November 2020, the popular initiative ‘For responsible companies – to protect people and the environment’ (Responsible Business Initiative RBI, Konzernverantwortungsinitiative KVI) was rejected. Although a narrow majority of voters were in favour of its adoption, the required majority of the cantons was not achieved. The parliament’s indirect counterproposal was therefore adopted. In order to implement this in Swiss legislation, the Federal Council has introduced new due diligence and transparency obligations in the Swiss Code of Obligations (CO) and the corresponding implementing provisions in an ordinance (DDTrO) with effect from 1 January 2022. The Federal Council has also adopted an implementing ordinance on mandatory climate reporting for large Swiss companies, which came into force on 1 January 2024. For further information on these developments in Switzerland, please refer to the MLL-publication dated 9 May 2022.

At that time, Switzerland was already striving for internationally harmonised legislation and was primarily guided by the EU Non-Financial Reporting Directive (NFRD) in force in the EU at the time. With the CSRD introduced in the meantime, Swiss legislation no longer reflects the current status of the corresponding EU directives. In September 2023, the Federal Council announced that Swiss law was to be harmonised internationally. On 26 June 2024, the Federal Council then opened the consultation procedure with the aim of adapting the current Swiss provisions on reporting on non-financial matters to the CSRD by 31 October 2024. Among other things, (i) the threshold in art. 964a para. 1 no. 2 CO is to be lowered from 500 to 250 full-time employees¹, (ii) it will be sufficient in future if two of the three thresholds in art. 964a CO are met in two consecutive years, regardless of whether the threshold of 250 full-time employees is reached or not, (iii) the comply or explain-approach will no longer apply and (iv) an audit obligation will be introduced.² Due to the expansion of the scope of application, far more companies will be affected by the reporting obligations under art. 964a et seqq. CO in future.

2. What are the legal developments in the EU?

There have also been significant developments in the EU. The EU regulated corporate sustainability reporting in the NFRD back in 2017. However, the EU Commission subsequently realised that this set of rules was not sufficient with regard to the requirements of the Sustainable Finance Action Plan (see question 4). The further development of the NFRD was driven forward accordingly.

The CSRD came into force on 5 January 2023, replacing the previous regulations under the NFRD. The EU Member States have until July 2024 to implement the new rules at national level.

On 22 November 2022, the European Financial Reporting Advisory Group (EFRAG) published the first drafts of the European Sustainability Reporting Standards (ESRS), which comprise twelve standards and include both cross-cutting and thematic standards, and submitted them to the EU Commission for endorsement or revision. The ESRS are intended to specify the disclosure requirements within the framework of the CSRD. The first set of ESRS has already been published and has been applicable since 1 January 2024. However, the adoption of the sector-specific ESRS and the standard for certain non-EU companies has been postponed to 30 June 2026.³

The EU Council formally adopted the CSDDD on 24 May 2024. The CSDDD introduces due diligence obligations for large companies with regard to the negative impact of their activities on human rights and the environment. It covers a company’s own business operations, upstream activities and certain downstream activities along the value chain. When the CSDDD enters into force on 25 July 2024, the two-year implementation period begins, during which the Member States must enact national laws to implement the obligations of the CSDDD. The CSDDD affects large companies, risk sector companies and non-EU companies with at least 1,000 employees and a net turnover (within the EU) of EUR 450 million or more. In other words, the CSDDD is directly applicable to non-EU companies, provided that the net turnover of EUR 450 million is generated within the EU. Although smaller companies are not directly covered by the scope of application, they may be indirectly affected.

3. What is the CSRD and how does it differ from the NFRD?

The CSRD replaces the NFRD, which came into force in 2014, and leads to a massive expansion of the existing scope of companies subject to reporting requirements from an estimated 12,000 to around 50,000 companies across Europe. The introduction of the CSRD also significantly strengthens the EU sustainability reporting requirements for companies.

The CSRD is a directive that obliges certain companies based or operating in the EU (see question 7 for a more precise definition) to disclose information on their sustainability on an annual basis. The CSRD significantly tightens the existing requirements of the NFRD and standardises them across the EU. The aim of the CSRD is therefore to improve transparency and accountability regarding sustainability information from companies. This should give stakeholders a better understanding of how these companies address sustainability issues. The CSRD also aims to accelerate the integration of sustainability considerations into companies’ business practices and thus support the transition to a more sustainable, inclusive economy.

The reporting obligations under the CSRD will be introduced gradually over the coming years (see question 7).

4. What is the wider context (EU Green Deal) of the CSRD and the Taxonomy Regulation? What does the EU want to achieve with its new regulations?

With the European Green Deal, the EU has set itself the goal of making Europe the world’s first climate-neutral economic area by 2050 and decoupling economic growth from resource consumption. The European Green Deal provides for a comprehensive range of measures that will penetrate the most diverse areas of the economy and industry. By 2030 alone, the EU Commission anticipates an additional annual private investment requirement of EUR 180 billion. Accordingly, the EU is assigning a key role to the financial system and wants to mobilise financial flows and channel them into the necessary investments.

In this context, the EU Commission published the Sustainable Finance Action Plan in March 2018. Since then, it has been gradually creating a legal framework that places environmental, social and governance (ESG) aspects at the centre of the financial system. In addition to the CSRD, the three most important new EU regulations in this area are the EU Taxonomy for Sustainable Activities (Taxonomy Regulation) and the Sustainable Finance Disclosure Regulation (SFDR).

The Taxonomy Regulation is a common classification system for the EU economic area, according to which the sustainability of certain activities is to be measured. Based on this, companies will in future have to collect and publish their sustainability classification based on their CSRD key figures, such as the proportion of turnover from or investments (capex) in ‘environmentally sustainable’ activities.

The SFDR obliges financial companies to disclose to their clients the extent to which they incorporate ESG factors into the decision-making process for their financial products and what the material adverse sustainability impacts of their financial products are. This requires companies to collect and publish the relevant information in accordance with the CSRD.

5. What does the CSRD regulate and what role do the ESRS play?

The CSRD is the legal basis that anchors and regulates the disclosure obligations. The framework conditions for implementation and the more precise content of the disclosure obligations are defined in the ESRS. The ESRS contains twelve standards that cover a wide range of environmental, social and governance issues, including topics such as climate change, pollution and human rights.

With the ESRS, the EU Commission is issuing common standards that concretise the content and structure of the disclosure obligations in accordance with the CSRD. The introduction of the ESRS is intended to avoid the use of several voluntary standards, as is the case today. The use of different standards currently leads to problems with the quality of sustainability reporting.

6. What are the differences between the CSRD and the current Swiss provisions on transparency regarding non-financial matters?

Scope of application of the CSRD

7. When does the CSRD apply and to which companies?

The provisions of the CSRD will come into force in various phases between 2024 and 2028.

• From January 2025 for the 2024 financial year, the new rules will apply to large public-interest entities, i.e. capital market-oriented companies⁴, large financial services providers and insurance companies, if two of the following three criteria are exceeded:
  • More than 500 employees on average during the financial year;
  • Balance sheet total over EUR 20 million;
  • Sales revenue over EUR 40 million.

Companies that are not domiciled in the EU but have securities on EU-regulated markets also fall within the scope of application from 2025 for the 2024 financial year (provided two of the above thresholds are met).

• From January 2026 for the 2025 financial year, large companies⁵ based in the EU (listed and non-listed, regardless of their legal form and the registered office of any parent company) are also included in the scope if two of the following three criteria are exceeded:
  • More than 250 employees on average during the financial year;
  • Balance sheet total of over EUR 25 million;
  • Sales revenue of more than EUR 50 million.
• From January 2027 for the 2026 financial year, listed small and medium-sized enterprises (SMEs)⁶ as well as small and non-complex credit institutions, captive insurance undertakings and captive reinsurance undertakings will be covered by the scope of the CSRD.

Provided that listed SMEs justify in their management report why the sustainability information has not been provided, SMEs have the possibility to make use of an exemption (so-called ‘opt-out’) during a transitional period, according to which they are exempt from the application of the CSRD until 2028. For the sake of completeness, it should be noted that this option is not available for small and non-complex credit institutions, captive insurance undertakings and captive reinsurance undertakings.

Listed micro-entities⁷ that do not exceed the limits of at least two of the following three size criteria on the balance sheet date are exempt from the reporting obligation:

• • Average of 10 employees during the financial year;
  • Balance sheet total of EUR 450,000;
  • Net sales of EUR 900,000.

• From January 2029 for the 2028 financial year, non-EU companies are also included if they generated net revenue of more than EUR 150 million in the EU at consolidated or group level in each of the last two consecutive financial years and have either a branch in the EU with revenue of more than EUR 40 million in the previous financial year or a subsidiary in the form of a large company or a listed SME. The reporting obligation of such non-EU companies then also includes their non-EU subsidiaries.

8. Does the CSRD also have an impact on companies based in Switzerland?

8.1 Direct effects for companies falling within the scope of application

All companies falling within the scope of application (see question 7) that are subject to the law of an EU Member State or are established in an EU Member State are affected by the CSRD, including subsidiaries of Swiss companies.

If a Swiss company has several EU subsidiaries, there is the option under the group exception for the Swiss parent company to provide a CSRD-compliant sustainability report that covers the entire group. This does not apply to listed (subsidiary) companies of public interest that fall within the scope of the NFRD.⁸

Small companies from Switzerland are unlikely to be directly affected by the CSRD due to the thresholds regarding turnover in the EU, but in some cases indirectly (see question 8, section 8.2). In particular, commodity traders with high trading volumes and a subsidiary or branch office in the EU, but a small number of employees, could be covered by the scope of the CSRD.

8.2 Indirect effects for Swiss companies

Small and medium-sized Swiss companies that are not directly covered by the CSRD are also likely to be indirectly affected sooner or later, e.g. as suppliers or customers of companies covered by the CSRD, by being asked to provide sustainability information by their business partners as part of the value chain.

In future, the SME ESRS, which are expected to be adopted by the EU Commission by 30 June 2026, can be used as a reference for which sustainability information is required from indirectly affected companies and how this must be disclosed. No draft of the SME ESRS is currently available.

9. Are there exceptions to the reporting obligation under CSRD?

9.1 Group exception

If the Swiss parent company provides a CSRD-compliant sustainability report that covers the entire Group, all subsidiaries included are exempt from preparing their own sustainability reports. The reporting would therefore have to be prepared under the ESRS or an equivalent standard from 2026 for the 2025 financial year. The EU Commission is authorised to determine the procedure for determining the equivalence of the standards used by third countries (see question 9, section 9.3).⁹ Listed (subsidiary) companies of public interest that fall within the scope of the NFRD are exempt from the exemption.¹⁰

9.2 Exception for non-EU parent companies (artificial consolidation)

If a Swiss parent company has several subsidiaries in the EU, in the first seven years of the reporting obligation¹¹ one of the largest EU subsidiaries (with the highest sales revenue in at least the last five years) can prepare a consolidated sustainability report that includes all EU subsidiaries that are required to report under CSRD on their own. This means that each of these subsidiaries does not have to publish an individual report. This exception is also known as ‘artificial consolidation’, as the largest subsidiary publishes a report for all other EU subsidiaries of the same parent company that are subject to reporting requirements and thus assumes a comparable role from the 2025 financial year as the parent company will have for all EU and non-EU subsidiaries from the 2028 financial year.

9.3 Equivalent reporting

The EU regulations leave room for exceptions if the company in question already makes use of an equivalent sustainability standard. The EU Commission is authorised to designate individual sustainability reporting frameworks or systems as equivalent to ESRS reporting in accordance with the CSRD. It has not yet been determined which non-EU regulations or standards will be considered equivalent. As the Swiss provisions on transparency on non-financial matters in the CO were drafted on the basis of the NFRD and have not yet been adapted to the CSRD, we consider it unlikely that the Swiss provisions for non-financial reporting will fulfil the equivalence requirements. Against this background, the Federal Council has also instructed the Federal Office of Justice to further harmonise Swiss non-financial reporting with the CSRD. The Federal Council published corresponding proposed amendments in June 2024 and opened a consultation procedure that will last until the end of October 2024 (see question 1).

Reporting in accordance with CSRD

10. My company falls within the scope of the CSRD. What does this mean?

Companies that fall within the scope of the CSRD must disclose a comprehensive range of sustainability-related information. In particular, there is an obligation to publish an annual sustainability report. The content, structure and scope of the report is based on the mandatory ESRS.¹²

According to the ESRS, required information in the report includes the following:

• Description of the company’s business model and strategy and explanation of how the findings from the double materiality analysis and the sustainability due diligence process are reflected in it;
• Time-bound sustainability targets that the company has set itself;
• Description of the role of the administrative, management and supervisory bodies in relation to sustainability aspects and their expertise and skills to fulfil this role or their access to such expertise and skills;
• Description of the corporate policy with regard to sustainability;
• Information on the existence of incentive schemes linked to sustainability aspects offered to members of the administrative, management and supervisory bodies;
• Comprehensive reporting obligations in the area of greenhouse gas emissions and climate change;
• Comprehensive qualitative and quantitative reporting on all topics identified as material according to the double materiality analysis;¹³
• Covering the entire value chain of the company;
• Explanation of the exercise of due diligence in the area of sustainability (sustainability due diligence);
• Application of the Taxonomy Regulation for financial reporting.¹⁴

11. Will a Swiss company have to publish a CSRD sustainability report and a separate report in accordance with the Swiss Code of Obligations in future?

If a company fulfils the criteria set out in art. 964a para. 1 CO¹⁵, it is obliged to prepare a report on non-financial matters (art. 964b para. 1 CO)¹⁶. This report must then be approved and signed by the supreme management and administrative bodies and the body responsible for approving the annual financial statements.

If a Swiss company is controlled by another company that already prepares a CSRD-compliant sustainability report, it is exempt from the obligation to publish a report in Switzerland (art. 964a para. 2 no. 2 CO).¹⁷ If this exemption does not apply, the group exemption under the CSRD could also apply (see question 9, no. 9.1).

In implementing the counterproposal, Switzerland has dispensed with an explicit link to a specific reporting standard. In this context, the current version of the Ordinance on Reporting on Climate Matters establishes the presumption that reporting on climate matters in accordance with art. 964a para. 1 CO is fulfilled insofar as the report complies with the TCFD standard. However, companies are free to use a different reporting standard as long as the minimum content requirements pursuant to art. 964b para. 1 and 2 CO are met. In other words, it is possible to carry out consolidated reporting in accordance with the ESRS and thus go beyond the expected content requirements of the Swiss provisions, but at the same time fulfil the EU provisions.

According to the report on the amendment of the provisions on sustainability reporting, companies in Switzerland should continue to have the choice of basing their sustainability reporting either on the EU standard or on another equivalent standard. The Federal Council will specify the equivalent standards. Whether the presumption that the report in accordance with the TCFD standard fulfils the legal requirements under art. 964a para. 1 CO will again apply in the future version is currently still open.

12. How do I proceed step by step when implementing a report in accordance with CSRD?

There are many different aspects to consider when implementing a report. A simplified step-by-step guide should include the following measures:

1. Understanding the legal requirements;
2. Conducting a double materiality analysis including the involvement of the relevant stakeholders and evaluating the findings from the due diligence process in the area of sustainability;
3. Deriving and reviewing the sustainability strategy and drawing up a corporate sustainability plan with specific targets;
4. Defining the processes and necessary systems and resources for collecting the necessary quantitative data and qualitative information;
5. Define the concept for machine-readable sustainability reporting;
6. Internal implementation of the sustainability plan in business practices;
7. Continuous performance measurement;
8. Ongoing internal and external communication of the plan with employees and other stakeholders.

13. How is CSRD reporting audited?

The CSRD has introduced a general EU-wide verification and confirmation requirement for sustainability reporting. The information must be checked for compliance with the reporting standards of the process carried out by the company to determine the reported information and the labelling in accordance with the requirements of the electronic reporting format, including the indicators in accordance with art. 8 of the Taxonomy Regulation. This should largely dispel the concerns of investors and other stakeholders as to the extent to which companies’ current sustainability disclosures are actually reliable.

The CSRD envisages initially prescribing a “limited” confirmation. Limited assurance is more cost-effective for companies and is more in line with the current capacity and technical capability of the market for assurance services. As there are no standards for this yet, it is currently difficult to confirm sustainability reporting with sufficient certainty. The CSRD gives Member States the option of opening up the market for sustainability assurance services to so-called “independent assurance providers”. Member states could therefore commission companies other than the usual auditors to confirm the quality of their sustainability information.

Currently, the audit obligations are still specified by the individual EU Member States (as part of the implementation of the NFRD). The EU Commission intends to define uniform limited assurance standards by 1 October 2026 at the latest. Sufficient assurance standards are planned from 1 October 2028 at the latest.

14. What sanctions can be imposed if a company fails to fulfil its reporting obligations under the CSRD?

The amount of the fine was not explicitly specified in the EU Commission’s draft directive, but criteria were defined that should be taken into account when determining the amount.

At least the following administrative measures and sanctions are specified for specific breaches of the obligation to publish information by a company subject to the reporting obligation:

• The public announcement of those responsible and the nature of the offence;
• An order to cease and desist from the behaviour that violates the rules;
• Administrative fines.

However, the version of the CSRD finally published in the Official Journal no longer contains a paragraph on standardised penalties. The amount of the fines and any further sanctions are therefore to be determined by the Member States.

Current Swiss law is currently limited to fines of up to CHF 100,000 for intentional offences and up to CHF 50,000 for negligent offences.¹⁸

15. Are the Board of Directors and the Executive Board liable for inadequate reporting?

Although the CSRD does not contain any explicit provisions for the personal liability of the board of directors or management, it does create incentives, which may vary depending on the regulations in the Member States.

In Switzerland, the personal liability of the Board of Directors and the top management of a public limited company is governed by art. 754 CO.

Bei Fragen und/oder Anmerkungen stehen Ihnen Ihre Kontaktpersonen bei MLL Legal gerne zur Verfügung. 

If you have any questions and/or comments, your contact persons at MLL Legal will be happy to assist you.

***

This article does not constitute legal advice. It merely expresses the authors’ current understanding of the legal issue under discussion, without taking individual circumstances into account. Any liability for the contents of this article is excluded. Furthermore, MLL Legal is under no obligation to inform readers of this article about changes in legislation, new case law, changes in practice or other changes.

Bei Fragen und/oder Anmerkungen stehen Ihnen Ihre Kontaktpersonen bei MLL Legal gerne zur Verfügung. 

Bei Fragen und/oder Anmerkungen stehen Ihnen Ihre Kontaktpersonen bei MLL Legal gerne zur Verfügung. 

Bei Fragen und/oder Anmerkungen stehen Ihnen Ihre Kontaktpersonen bei MLL Legal gerne zur Verfügung. 

¹ analogous to art. 727 para. 1 no. 2 lit. c CO.

² On the whole: Explanatory report on the opening of the consultation procedure regarding the amendment to the Code of Obligations (transparency on sustainability aspects) of 26 June 2024 (report on the amendment of the provisions on sustainability reporting).

³ The European Commission’s Q&A on the ESRS can be accessed here.

⁴ Capital market-oriented companies are public interest entities governed by the law of a Member State and whose transferable securities are admitted to trading on a regulated market of a Member State within the meaning of art. 4 para. 1 no. 14 of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments. These companies were already covered by the scope of the NFRD.

⁵ Art. 3 para. 4 Directive 2013/34/EU.

⁶ Art. 3 para. 2 and 3 Directive 2013/34/EU.

⁷  Art. 3 para. 1 Directive 2013/34/EU.

⁸ Art. 19a para. 10 in conjunction with. art. 2 para. 1 lit. a Directive 2013/34/EU.

⁹ Art. 2 para. 3 CSRD.

¹⁰ Art. 19a para. 10 in conjunction with art. 2 para. 1 lit. a Directive 2013/34/EU.

¹¹ Until 6 January 2030.

¹² The European Parliament and the Council of the EU have not yet finalised the current draft of the ESRS (see question 2). There may thus still be changes to the content requirements for reporting in accordance with the ESRS.

¹³ Double materiality takes into account the impact of the company (impact materiality) and the financial opportunities and risks for the company (financial materiality).

¹⁴  i.e. disclosure of the share of turnover, operating expenses and investments that is considered environmentally sustainable according to the EU taxonomy.

¹⁵ On the criteria: See question 6.

¹⁶ This report must cover the following topics: Environmental matters, in particular CO2 targets, social matters, employee matters, respect for human rights and the fight against corruption (cf. art. 964b para. 1 CO).

¹⁷ See our publication of 9 May 2022 for further details.

¹⁸ Art. 325ter SCC.