Climate Change Regulation 2023 Comparisons

Main Multilateral Climate Change Regime

Switzerland has ratified the following major multilateral climate change legal regimes.

The United Nations Framework Convention on Climate Change (UNFCCC)

Switzerland ratified the UNFCCC in 1993. At a later stage, Switzerland also ratified the Kyoto Protocol in 2003 and the Paris Agreement in 2017 (see below).

As a member of the UNFCCC, Switzerland is closely involved in international negotiations on climate funding. Specifically, Switzerland plays an active role within the context of the Global Environment Facility (GEF) and the Green Climate Fund (GCF), to which Switzerland contributes a fair amount.

Additionally, Switzerland is involved in three other climate funds linked to the UNFCC:

• the Least Developed Countries Fund (LDCF), aimed at the specific needs of the least developed countries;
• the Special Climate Change Fund (SCCF), providing additional funds for the climate protection measures set out in the UNFCC in emerging countries; and
• the Adaptation Fund (AF), which was launched in 2001 as a finance mechanism under the Kyoto Protocol to finance projects and programmes to help developing countries adapt to climate change.

Switzerland is part of the Environmental Integrity Group (EIG) comprised of Georgia, Liechtenstein, Monaco, Mexico, South Korea and Switzerland from the UNFCCC negotiations. The EIG strives to play a constructive role and tries to help find common ground between countries with different interests.

The Kyoto Protocol

Under the Kyoto Protocol, industrialised countries committed to reducing their greenhouse gas emissions by an average of 5.2% compared to 1990 levels in a first period ranging from 2008 to 2012, generally known as the first commitment period. Switzerland committed to a reduction of 8%, the same amount as the European Union (EU). Switzerland met its emissions reduction requirements under the Kyoto Protocol in the first commitment period.

Switzerland also agreed to a second commitment period under the Kyoto Protocol (Doha Amendment). Specifically, Switzerland committed to reduce its emissions by 20% compared to 1990 levels by 2020. After 2020, the Kyoto Protocol was replaced by the Paris Agreement.

The Paris Agreement

Under the Paris Agreement, Switzerland has committed to reduce its greenhouse gas emissions by 50% in 2030 compared to 1990 levels (Nationally Determined Contribution, NDC) and strives to cut greenhouse gas emissions to net zero by 2050.

Switzerland strives to reach the NDC in part by funding climate protection projects abroad. To this end, Switzerland is, among other initiatives, concluding a number of treaties that set out the co-operation framework and state the requirements for recognition of the international transfer of emission reductions by the treaty parties.

Other Commitments to Mitigate Climate Change

Switzerland takes part in the UNECE Convention on Long-range Transboundary Air Pollution Transport and is a party of the Gothenburg Protocol. As part of the commitment under the Gothenburg Protocol, Switzerland reports on an annual basis on national emissions data related to black carbon that is part of fine particulate air pollution and that contributes to climate change.

Switzerland also continues its participation in the Climate and Clean Air Coalition (CCAC) that promotes action on Short-Lived Climate Forcers. Short-lived climate forcers are substances such as methane, ozone and aerosols that remain in the atmosphere for a much shorter period of time than carbon dioxide (CO₂).

Apart from certain bilateral agreements and treaties – eg, in the framework of the Emission Trading System (ETS) – Switzerland does not participate in regional climate change legal regimes. In particular, as a non-EU member Switzerland does not take part in the climate change initiatives of the EU (such as the European Green Deal).

To achieve the mitigation goals and commitments set out under the Paris Agreement and the net-zero target, Switzerland has adopted a long-term climate strategy towards 2050. This strategy sets key goals to be met by 2050 in the following sectors:

• buildings – building stock should no longer generate greenhouse gases;
• industry – greenhouse gas emissions from the industrial sector should be reduced by at least 90% compared to 1990 levels;
• transport – land transport should, with few exceptions, no longer generate greenhouse gas emissions (emissions created by air transport should be offset by other measures);
• agriculture – greenhouse gas emissions from domestic agricultural production should be reduced by at least 40% compared to 1990; and
• financial markets – Switzerland’s financial flows should follow a pathway towards low greenhouse gas emissions and climate-resilient development.

The remaining amount of (non-avoidable) CO₂ emissions is meant to be reduced by means of carbon capture and storage and by using negative emission technologies (ie, permanently removing CO₂ from the atmosphere). At this stage, however, the relevant legal framework for the achievement of these mitigation goals has not been enacted as a full revision of the Federal Act on the Reduction of CO₂ Emission (the “CO₂ Act”)  was rejected in a popular vote in 2021 – see 3. National Policy and Legal Regime (Mitigation).

Regarding adaption to climate change, Switzerland has already implemented most of the requirements under the Paris Agreement. Based on the existing CO₂ Act, the Swiss Federal Council endorsed a two-part adaptation strategy for Switzerland – see 4. National Policy and Legal Regime (Adaptation).

Climate finance is an essential part of Switzerland’s international climate policy and Switzerland contributes an appropriate share to the Global Environment Facility (GEF) and to the Green Climate Fund (GCF). Switzerland is also a board member of both organisations. In addition to public financing, in 2019 Switzerland developed a strategy to mobilise private finances for climate protection activities in developing countries.

Concerning emissions trading and compensation, the CO₂ Act requires some operators to participate in the ETS, especially aircraft operators and greenhouse gas-intensive companies – see 3. National Policy and Legal Regime (Mitigation).

Moreover, Switzerland has concluded a number of bilateral treaties on emission reductions and carbon storage abroad, as the Paris Agreement foresees that emissions reduction can be achieved by funding climate protection projects abroad. These bilateral agreements serve as a legal basis for commercial contracts between buyers and sellers of emission reductions.

Constitutional Framework

Switzerland’s climate policy is based on Article 74 (environmental protection) and Article 89 (energy policy) of the Swiss Constitution. Article 74 gives the Confederation the competence to legislate on the protection of the population and its environment against damage or nuisance. Article 89 paragraph 2 states that the Confederation shall establish principles on the use of local and renewable energy sources and on the economic and efficient use of energy. Neither Article 74 nor Article 89 provide a specific framework for the implementation of climate change regulation.

However, the aforementioned articles of the Swiss Constitution serve to grant the Swiss legislature (Parliament) the competence to enact laws to protect the population and environment against the consequences of climate change. The Swiss Parliament has done so by implementing the CO₂ Act that, together with the Ordinance on the Reduction of CO₂ Emissions (the “CO₂ Ordinance”), forms the legal basis of Switzerland’s national climate policy. Furthermore, the Swiss federal government wants to introduce a Climate and Innovation Act that functions as a framework for the CO2 Act and other acts and ordinances in Switzerland’s extensive legal climate change regime.

The CO₂ Act and CO₂ Ordinance

Current regulation

The CO₂ Act and the CO₂ Ordinance implement Switzerland’s international climate obligations under the Paris Agreement into national law and define objectives, instruments, measures and general rules for the implementation of climate policy.

The overarching aim of the CO₂ Act is the reduction of greenhouse gas emissions that are attributable to the use of fossil fuels as energy sources, and to limit the global rise in temperatures to less than 2 degrees Celsius (Article 1). It states that domestic greenhouse gas emissions must be reduced by 20% by 2020 and by a further 1.5% annually until 2024 (compared with 1990 levels; Article 3).

Rejected revision

A complete revision of the CO₂ Act was meant to enter into force in 2022. The revised CO₂ Act would have strengthened Switzerland’s climate protection measures and included various additional measures to fight climate change, such as:

• creation of a climate fund to support the installation of climate-friendly heating systems in buildings, infrastructure investments, and help for Swiss companies to quickly bring climate-friendly technologies to the market;
• a levy on air traffic tickets;
• an increase of the CO₂ levy; and
• prohibition of emission of CO₂ from fossil fuels in new buildings.

However, in a referendum held in June 2021, Swiss voters narrowly rejected the revised CO₂ Act.

Future plans for revision

As some of the measures of the current CO₂ Act were limited to 2022, parliament enacted a prolongation of the currently existing measures through a minor revision of the CO₂ Act and its CO₂ Ordinance following the rejection of the revised CO₂ Act in June 2021. This minor revision is meant to bridge the gap until the adaption of a revised CO₂ Act in 2025, which will aim at culling greenhouse gas emissions by 50% until 2030.

Further legislation

While the CO₂ Act provides that the reduction targets shall be achieved, as a first priority, through measures set forth in the CO₂ Act, additional measures in the fields of environment and energy, agriculture, forestry and timber, road traffic and taxation of mineral oil shall contribute to achieving the reduction target as well (Article 4). Therefore, the following acts will be important co-contributors to the Swiss climate change regime:

• the Environmental Protection Act;
• the Energy Act;
• the Federal Act on Agriculture;
• the Spatial Planning Act;
• the Forest Act;
• the Road Traffic Act;
• the Heavy Vehicle Charge Act;
• the Mineral Oil Tax Act; and
• the Ordinance on the Avoidance and Management of Waste.

The Climate and Innovation Act

Furthermore, Swiss legislators have passed the Federal Act on the Objectives in Climate Protection, Innovation and the Strengthening of Energy Security (the “Climate and Innovation Act”). The Act aims to serve as a framework for the above-mentioned legislation and aims to fulfil the commitments made under the Paris Agreement. For this purpose, it adopts three main strategies:

• reduction of greenhouse gas emissions and application of negative emission technologies;
• adaptation to and protection from the impacts of climate change; and
• directing financial resource flows towards low-emission development that is resilient to climate change.

The main objective of the Act is to achieve the net-zero target by 2050. The Federal Council is to ensure that, compared to 1990, greenhouse gas emissions are reduced in accordance with the following interim targets:

• on average over the years 2031–2040 – by at least 64%;
• by the year 2040 – by at least 75%; and
• on average over the years 2041–2050 – by at least 89%.

After 2050, the amount of CO2 removed and stored through the application of negative emission technologies must exceed the remaining greenhouse gas emissions.

The Climate and Innovation Act was subject to a referendum and will be voted on by the Swiss people on 18 June 2023.

Switzerland is looking into co-operation pursuant to Article 6.2 of the Paris Agreement with various countries and aims to achieve its climate targets through international co-operation. To date, Switzerland has concluded different agreements with Peru, Ghana, Senegal, Georgia, Vanuatu, Dominica, Thailand, Ukraine, Morocco, Malawi, Uruguay and Chile.

Switzerland is notably engaged in the promotion of climate smart agriculture practices for sustainable rice cultivation in Ghana, as well as in the operation of e-buses on privately owned, scheduled public bus routes in the Bangkok Metropolitan area by Energy Absolute. Furthermore, Switzerland has signed a declaration of intent with Iceland and a memorandum of understanding with the Netherlands regarding carbon capture and storage (CCS) and carbon dioxide removal (CDR).

The key regulatory authority concerning climate and climate change is the Federal Office for the Environment (FOEN), which is a sub-department of the Federal Department of the Environment, Transport, Energy and Communications (DETEC). The Climate Division of the FOEN is responsible for:

• fulfilling international climate policy obligations;
• federal legislation (the CO₂ Act and CO₂ Ordinance);
• measures to reduce greenhouse gases;
• strategies and measures in the field of adaptation to climate change;
• reviewing the performance of climate policy; and
• advising the government and the public on the causes and impact of climate change.

The Climate Division is further subdivided into four sections:

• the Climate Reporting and Adaption Section, which deals with reporting to the UNFCCC and the EEA about emissions developments in Switzerland and the development and implementation of the Swiss strategy for adaptation to climate change;
• the Climate Policy Section, which deals with the development of climate policy strategies and goals for Switzerland and the preparation of climate policy matters for the Federal Council and parliament;
• the CO₂ Levy and Emissions Trading Section, which deals with the implementation and redistribution of the CO₂ levy and the implementation of emissions trading; and
• the CO₂ Compensation Section, which deals with the approval and monitoring of climate protection projects and programmes in Switzerland and abroad.

Additionally, the Swiss Federal Office of Energy and the Swiss Agency for Development and Co-operation are important for certain aspects of climate change policy development.

The CO₂ Act has the primary aim of reducing the emission of greenhouse gases with a reduction target of 20% by 2020, and by a further 1.5% annually until 2024 (compared to 1990). To achieve this goal, the CO₂ Act provides for the following core measures, which are further specified in the CO₂ Ordinance.

Technical Measures (Articles 9–13, CO₂ Act)

The CO₂ Act implements technical measures for reducing CO₂ emissions with regard to:

• buildings; and
• passenger cars, vans and light articulated vehicles.

Concerning buildings, the CO₂ Act states that the cantons are responsible for implementing rules to mitigate CO₂ emissions from buildings that are heated with fossil fuels (Article 9), but does not specify these measures and leaves room for their implementation.

As for passenger cars, vans and light articulated vehicles, the CO₂ Act stipulates that the importer or manufacturer of these vehicles must reduce the average CO₂ emission of the vehicles it imports into or manufactures in Switzerland (Article 10). To ensure this, an individual target is calculated for each importer or manufacturer of vehicles. If the average CO₂ emissions of an importer’s or manufacturer’s passenger car fleet exceed this individual target, the importer or manufacturer in question must pay the federal government a legally defined amount as a penalty (Article 13).

The Emissions Trading System (ETS, Articles 15–21, CO₂ Act)

The CO₂ Act states that operators of installations which belong to a specific category and which cause high greenhouse gas emissions (eg, combustion of fossil fuels, production of aluminium) and operators of aircraft (Article 16–16a) are required to participate in the ETS. Furthermore, certain operators of installations that cause high or moderate greenhouse gases can participate in the ETS on a voluntary basis.

The ETS in Switzerland works in such a way that, each year, a maximum amount of newly available emission allowances are specified in the ETS (Article 18). Some of the allowances are then allocated free of charge, while others are auctioned (Article 19). Each year, the participants have to cover their actual emissions with an adequate amount of emissions allowances. Therefore, the participants in the ETS are able to use their allowances for their own emissions or to sell them to other ETS participants. With these mechanisms, emissions should be reduced where doing so is most cost-efficient.

Compensation for Motor Fuels (Articles 26–28, CO₂ Act)

The CO₂ Act regulates that any person who distributes motor fuels for consumption must compensate for part of the CO₂ emissions that are attributable to the use of motor fuels as an energy source. Failure to compensate for the CO₂ emissions leads to payment of a penalty.

The CO₂ Levy (Articles 29–38, CO₂ Act)

The CO₂ Act stipulates that the federal government shall impose a CO₂ levy on the production, extraction and importation of thermal fuels. The revenues generated from the CO₂ levy shall be used to reduce CO₂ emissions from buildings, and for the promotion of technologies for reducing greenhouse gases (technology fund). Any excess shall be redistributed to the general public and the economy.

The Adaptation Strategy

Following mitigation, adaptation to climate change is the second pillar of Swiss climate policy. Article 8 of the CO₂ Act states that “the Confederation co-ordinates measures to avoid or deal with the harm to persons or damage to property of substantial value that may be caused by the increased concentration of greenhouse gases in the atmosphere”.

In compliance with Article 8 of the CO₂ Act, the Federal Council created a strategy for the adaptation to climate change in Switzerland in 2012. The adaptation strategy is based on the most important challenges arising directly from the effects of climate change in Switzerland (eg, greater heat stress, increasing summer droughts, increased risk of flooding, a rising snowline, and changes in habitats, species composition and landscapes).

Implementation of the Adaptation Strategy

To implement the adaptation strategy, the Federal Council adopted a first action plan for the years 2014–19, while also instructing the Federal Department of Environment, Energy and Communications to carry out a biennial report on the implementation of the measures. A second action plan for the years 2020–25 was then elaborated on and adopted by the Federal Council.

The action plan for 2020–25 is an extensive, non-legal strategy paper containing 75 measures at the federal level in the following areas:

• water management (eg, lower flood risk due to lake regulations);
• natural hazards management (eg, conducting systematic hazard analyses and risk assessments that consider the impacts of climate change);
• soil conservation (eg, preparation of a report on carbon sequestration in the soils of Switzerland);
• agriculture (eg, strategy on the gentle use of soil and water);
• forestry (eg, reduction of forest fire risk through forest management measures);
• energy (eg, provision of information and monitoring of hydropower utilisation);
• housing (eg, research about heat stress in buildings);
• tourism (eg, supply development and diversification in Swiss tourism);
• biodiversity management (eg, upgrading open spaces in residential areas and agglomerations);
• health (eg, monitoring of potentially disease-transmitting alien mosquito species); and
• spatial development (eg, promotion of innovative projects and further development of policies and strategies to counteract heat).

Since the measures concern a wide variety of already regulated areas, the following federal offices (co-ordinated by the Interdepartmental Climate Committee) have contributed to the strategy and related measures:

• the Federal Office for the Environment;
• the Federal Office for Civil Protection;
• the Federal Office of Public Health;
• the Federal Office for Food Safety and Veterinary Affairs;
• the Federal Office for Agriculture;
• the Federal Office for Spatial Development;
• the Federal Office of Energy;
• the Federal Office of Meteorology and Climatology (MeteoSwiss);
• the State Secretariat for Economic Affairs (SECO);
• the Federal Office of Housing (BWO);
• the Federal Roads Office;
• the Federal Finance Administration; and
• the Federal Office for National Economic Supply (FONES).

Furthermore, to strengthen the federal collaboration by providing a knowledge hub for climate change adaptation, the National Centre for Climate Services (NCCS) was established in November 2015. The NCCS provides information and data on the past, present and future climate and its consequences for the environment, economy and society.

According to Article 6 of the Paris Agreement, countries may count reductions achieved abroad towards their emission reduction commitments. The emission reductions achieved in this way must promote sustainable development in the host country and may not already be claimed by another country.

The reduction target for 2020/2021 was achieved almost exclusively through domestic measures. However, companies that are exempt from the CO₂ levy may count a limited amount of foreign certificates towards their reduction obligation. These are issued in accordance with the international procedure set out in the Kyoto Protocol for additional emission reductions that can be proven to have been achieved through climate protection projects in developing countries (Clean Development Mechanisms, or CDM). In Switzerland, these certificates must also meet the quality requirements of Annex 2 of the CO₂ Ordinance.

The reduction target of 50% by 2030 compared to 1990 shall be achieved through compensation abroad.

In summer 2021, the European Commission presented the “Fit for 55” legislative package. One of the proposals therein is the Carbon Border Adjustment Mechanism (CBAM) that will introduce a carbon price on certain products imported into the EU. The new law mostly targets countries with lower environmental thresholds and will enter into application via a transitional phase on 1 October 2023, with the first reporting period ending on 31 January 2024.

Switzerland has been levying an incentive tax on fuels since 2008 and has linked its ETS to the EU’s system since 2020. Due to this, exports from Switzerland are exempted from the CBAM. In this regard, the CBAM will therefore have little impact on Swiss companies doing business in the EU.

Switzerland is following developments within the EU closely, and a first exchange with the EU Commission for implementing an adjustment mechanism at the border has taken place. According to some opinion leaders, Switzerland should introduce a similar tax as that of the EU, to prevent products from countries with lower environmental thresholds from entering the EU after transiting through Switzerland. As discussions on the implementation of the CBAM are ongoing, it cannot yet be assessed if and to what extent the CBAM will specifically affect Swiss entities and the transport of goods through Switzerland.

Since the establishment of the Task Force on Climate-Related Financial Disclosures (TCFD) by the Financial Stability Board (of which Switzerland is a member) at the end of 2015, the TCFD has heavily influenced Swiss policy and regulatory positions on climate change reporting.

By the end of 2020, the Federal Council had already presented proposals on how to strengthen Switzerland’s role as a global leader in sustainable financial services. In this context, the Federal Council called on Swiss companies from all sectors of the economy to implement the TCFD recommendations on a voluntary basis. At the same time, it was decided that an ordinance should be implemented to make the TCFD recommendations binding. On 12 January 2021, Switzerland opted to become an official supporter of the TCFD.

Banks and Insurances

In May 2021, the Swiss financial market regulator (FINMA) amended its “Disclosure – banks” and “Disclosure – insurers” circulars. The amendment requires large banks and insurance companies under FINMA’s supervision to describe the major climate-related financial risks and their impact on the business strategy, business model and financial planning. In addition, they must disclose the process for identifying, assessing and managing climate-related financial risks as well as quantitative information (including a description of the applied methodology) on their climate-related financial risks. The new requirements were based on the TCFD recommendations.

New Climate Reporting Obligations

Moreover, the Swiss Federal Council has launched the Ordinance on Climate Reporting for large, Swiss listed companies. The Ordinance specifies climate-related reporting obligations, which are part of more general reporting obligations on non-financial matters. The Ordinance will enter into force on 1 January 2024, and clarifies that companies required to report on non-financial matters will be deemed to have fulfilled their obligations with respect to climate reporting if they follow the recommendations of the TCFD for large Swiss companies.

As a general matter, potential liability of directors for Corporate Climate Responsibility (CCR) has received less attention in Switzerland than in common law jurisdictions where scholars intensively debate directors’ responsibility and liability in connection with climate change and climate risks.

General Liability Scheme

According to the director’s liability scheme set forth in Article 754 of the Swiss Code of Obligation (CO), directors can be held liable for damages suffered by the company and/or by the shareholders if a number of requirements are met, including, in particular, that a director must have breached their duty of care and that such breach led to a damage suffered by the company or by the shareholders.

The requirement considered to be the most difficult to scrutinise and to fulfil is the breach of a board duty. According to Article 717 of the CO, the board of directors is required to safeguard the interests of the company in good faith. The CO does not, however, stipulate an explicit obligation of the board of directors to pursue interests other than those of its shareholders.

Nevertheless, among Swiss scholars the CCR is often discussed in the context of whether the sole objective of a company is to create value for its shareholders (so-called shareholder primacy) or whether the board mandate includes a duty to safeguard the interests of other stakeholders (the so-called stakeholder approach).

Some Swiss scholars assume that external environmental effects are regulated exclusively by the framework of environmental legislation rather than by extending the duties of the board of directors to include a duty to protect environmental interests. Following that school of thought, the board of directors should not accept costs in order to pursue stakeholder interests that are not offset by a corresponding increase in the value of the company.

Conversely, other scholars maintain that a company must pursue three goals simultaneously in the sense of a triple bottom line:

• profit optimisation in the interests of investors;
• socially responsible behaviour in the interests of employees and civil society; and
• resource-conserving action to protect the environment.

Corporate Governance and Duty of Care

With regard to this controversy in the legal doctrine, the latest version of the “Swiss Code of Best Practice for Corporate Governance” provides some clarity, as this version does not solely focus on shareholders’ interests but on the “entirety of principles geared to the sustainable interests of the company.”

According to the CO, the board of directors is obliged to define the overall strategy and to perform the overall management. This general definition of board duties and obligations leads, for example, to the specific duty to implement and monitor an internal control system and a functioning risk management system designed to ensure systematic handling of internal and external corporate risks (in particular, liquidity, credit, market, operational and reputational risks). Further, the board of directors is obliged to set up a compliance system, which ensures compliance with legal requirements regarding the protection of human rights and the environment.

When pursuing its duties and tasks, the board of directors further has a duty of care. According to some scholars, the duty of care includes a duty to implement the principles of contemporary corporate governance adapted to the specific circumstances, and corporate governance recommendations are to be consulted as interpretative aids. In the context of CCR, the TCFD recommendations and the OECD Guidelines would be particularly appropriate for specifying due diligence obligations.

In view of the aforementioned duty of care, it seems increasingly more important for the board of directors to take long-term developments such as climate change into account and to promote a sustainable long-term corporate strategy that is fully aligned with all relevant standards and regulations.

Outlook

The current law provides for a liability scheme that could lead to the liability of the board of directors in connection with the realisation of climate risks. Irrespective of the academic dispute between shareholder primacy and the stakeholder approach, climate risks increasingly pose legal liability risks for board members.

Due to the lack of relevant precedents (or even pending lawsuits) in Switzerland, the liability risks may still be perceived as moderate today; in addition, procedural hurdles are high. However, the economic significance of climate risks suggests that liability risks are increasing. Further indications include the expectation of stricter regulations (in Europe as well as in Switzerland) and the increasing pressure from institutional investors. In order to mitigate liability risks in the climate context, board members are well advised to properly identify company-specific risks and opportunities regarding climate change, to report on them adequately and to implement appropriate measures – all in compliance with their duty of care.

Separation of Company and Shareholder/Company and Subsidiary

Swiss law sets forth the principle of strict separation between a corporation limited by shares and its shareholders, as well as between corporations connected to each other in a holding structure. As a consequence, shareholders and parent companies can only be held liable for damages caused by the company or their subsidiary in exceptional cases.

Piercing the Corporate Veil

A shareholder can only be held directly liable for damages caused by the company to the extent the corporate veil is pierced, which is only the case under exceptional circumstances. According to the relevant case law, the shareholder of a company may be held liable irrespective of the liability shield of the legal entity, where:

• the legal entity and its beneficial owner(s) are identical from an economic perspective; and
• the use of the legal entity by its beneficial owners serves an abusive purpose or harms justified interests of third parties.

Similarly, a parent company can be held liable for damages caused by its subsidiary in the following exceptional cases.

• Liability as de facto director: if the parent company performs tasks that are within the responsibility reserved to directors and officers of the subsidiaries, it may be deemed to be a de facto administrative body and thus might be held liable.
• Liability arising from “piercing the corporate veil”: the liability shield between a parent company and its subsidiary may be disregarded under analogous circumstances as between the company and its shareholders (see above).
• Liability resulting from a justified trust in the group company: the parent company may have to accept liability if it has given rise to a justified trust concerning the responsibility of the group that it did not live up to.

Under Swiss law, it is possible in theory to hold shareholders and/or parent companies liable for climate change damages caused by the company or its subsidiary. However, the threshold is high and exceptional circumstances are necessary to pierce the corporate veil and disregard the liability shield between the company and its shareholders. Currently, there is no precedent regarding the liability of shareholders and/or parent companies for climate change damages.

In the recent past, the Swiss legislature has imposed a number of new ESG reporting duties on Swiss companies, some of which also include a climate change component. The current ESG-reporting framework is set out below.

General ESG/Non-financial Reporting Obligation

The obligation to prepare a report on “non-financial matters” (ESG report) is modelled after the EU Directive on Non-Financial Reporting (Directive 2014/95). The aim of the ESG report is to provide information about the company’s environmental matters, in particular CO₂ targets, social matters, employee matters, respect for human rights and the fight against corruption. Specifically, the ESG report should cover the following (non-exhaustive) list of topics:

• the company’s business model;
• a description of the company’s ESG policies;
• a description of the measures taken to implement these policies and an assessment of the effectiveness of these measures;
• an assessment of the company’s ESG-related risks resulting from its operations and its business relationships, products or services, if relevant and proportionate (risk assessment); and
• non-financial key performance indicators applied regarding the company’s response to ESG risks (KPIs).

As regards the climate change-related component of the ESG report, the Federal Council intends to introduce TCFD-based reporting requirements, which will be part of the general ESG report. For this purpose, the Federal Council has decided that the Ordinance on Climate Reporting, according to which the climate change-related ESG-reporting obligations are fulfilled if the ESG report follows the recommendations of the TCFD, will enter into force on 1 January 2024.

The scope of application of the ESG-report obligation is rather narrow. In a nutshell, it only applies to large, listed or FINMA-regulated entities (banks, securities firms, asset managers, etc) domiciled in Switzerland with:

• at least 500 full-time employees on an annual average; and
• total assets of at least CHF20 million or revenues of CHF40 million in two consecutive years.

Entities that are controlled by an in-scope company or that are subject to equivalent reporting under foreign law are exempted from the ESG-reporting requirement.

The ESG-reporting obligation follows the “comply or explain” principle also known under EU law: if a company lacks policies on certain ESG topics, the ESG report must list justifiable reasons for the omission.

The ESG report may be based on national, European or international reporting standards, such as the OECD Guidelines for Multinational Enterprises or the standards of the Global Reporting Initiative (GRI). The report must be published in one of the Swiss national languages, or in English. It must be approved by the board of directors and the shareholders’ meeting, and made electronically accessible to the public during a period of ten years. The ESG report is not subject to an audit requirement.

The ESG report-related provisions entered into force on 1 January 2022. The first reports will be due ahead of the 2024 annual shareholders’ meetings covering the financial year 2023.

Supply Chain-Related Due Diligence and Reporting Duties (Article 964j-964l, CO)

Further to the above-mentioned ESG-reporting obligations, some companies are required to take additional due diligence measures with corresponding reporting obligations regarding conflict minerals and child labour in their supply chain (supply chain due diligence).

Companies falling within the scope of application of the supply chain due diligence (see below) must maintain a management system, which includes:

• the supply chain policy for minerals and metals that potentially originate from conflict-affected and high-risk areas;
• the supply chain policy for products or services in relation to which there is a reasonable suspicion of child labour; and
• a system by which the supply chain can be traced.

Companies are further required to:

• identify and assess the risks of harmful impacts in their supply chain;
• draw up a risk management plan; and
• take measures to minimise the identified risks.

The supply chain due diligence obligations only apply to companies with registered seat, head office or principal place of business in Switzerland that either:

• circulate or process in Switzerland minerals containing “conflict minerals” (minerals or metals containing tin, tantalum, tungsten, or gold from conflict or high-risk areas); or
• offer products or services for which there is a reasonable suspicion of child labour.

Furthermore, exemptions apply for small and medium-sized companies (regarding child labour-related duties) and companies with little exposure to conflict minerals (below a certain de minimis amount of minerals) or child labour (supplies from recognised low-risk countries only).

The corresponding reporting on the new supply chain due diligence obligations is due for the first time for the financial year 2023 – ie, the report must be published within six months following the close of the 2023 financial year. The report has to be approved by the board of directors (but not by the annual general meeting) and is subject to an audit requirement as far as the conflict mineral-related due diligence obligations are concerned.

Additional Transparency Rules for Commodities Companies

An additional set of transparency rules applies for large, listed commodities companies. The transparency rules require in-scope companies to report on payments made to state bodies (in cash or in kind) in excess of CHF100,000.

Since the scope of application only covers companies which (either directly or through direct subsidiaries) are active in the field of either extraction of minerals, oil or natural gas, or harvesting of timber in primary forests (under exclusion of trading in these commodities), the rules currently only apply to a handful of Swiss companies.

Other ESG Reporting and Climate Change Regulations

The International Sustainability Standard Board (ISSB) has developed two prototypes for climate-related reporting under the International Financial Reporting Standards (IFRS): the “IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information” and the ”IFRS S2 Climate-related Disclosures”. In Switzerland, either IFRS or US GAAP standards are – as a rule – applicable to stock exchange listed companies. Small and medium-sized enterprises may base their financial reports on national standards. For this reason, the direct effects of any new IFRS standards in Switzerland are limited. It is, however, noteworthy that IFRS standards are in general automatically adopted in Switzerland when issued by the board. Moreover, a number of Swiss companies voluntarily commit to reducing their greenhouse gas emissions through global initiatives such as the Science Based Targets initiative (SBTi).

Until quite recently, there was no separate workstream in legal due diligence focusing on climate change risks. Rather, climate change-related risks formed part of the assessment of the target’s regulatory compliance (eg, adherence to the new due diligence and reporting duties; see 6.4 Environmental, Social and Governance (ESG) Reporting and Climate Change) and the target’s potential exposure to claims.

However, climate change-related topics play an increasingly important role in the selection of potential targets and M&A in general. Separate ESG due diligence workstreams are no longer uncommon in transactions where climate change-related topics are of particular importance given the target’s business operations.

In property transactions, the legal assessment regarding the implementation of climate friendly investments (eg, new climate-friendly heating systems, photovoltaic systems, associations for self-consumption – Zusammenschluss zum Eigenverbrauch – where the residents of a building or buildings consume electricity that they have generated on-site themselves, energy-oriented refurbishment, green labels, etc) has become increasingly relevant, in particular for investment properties in connection with the requirements under the applicable tenancy law or in greenfield projects.

With the revision of the Energy Act and its entry into force in 2018, Switzerland has taken various measures regarding renewable energies.

Financial Contributions

In addition to a simplification of the approval procedures for new electricity generation plants, the Swiss federal government has created a number of financial contributions to support the implementation of renewable energy sources.

After a partial revision, which entered into force on 1 January 2023, the Energy Act provides for the following financial contributions (until the end of 2030):

• photovoltaic systems – contribution of up to 30% or up to 60% (in cases without self-consumption) of the investment costs of a comparable facility for the construction of new photovoltaic systems or the significant expansion of existing ones;
• auctions of large photovoltaic systems – contributions determined by means of auctions for large photovoltaic systems;
• hydropower – contributions of up to 60% for the construction of new hydropower plants as well as the extension of existing hydropower plants with an output of at least 300 kW or up to 40% for the renewal of existing hydropower plants with an output of at least 300 kW;
• biomass systems – contribution of up to 60% for the construction of new or significant expansion of existing biomass systems;
• wind energy systems – contribution of up to 60% for the construction of new wind energy systems; and
• geothermal plants – contribution of up to 60% for the prospecting or development of geothermal resources and construction of new geothermal plants.

Furthermore, owners of certain existing and reported systems and plants may benefit from a feed in renumeration.

Solar Obligation

As part of the partial revision that entered into force on 1 January 2023, the Swiss federal government introduced a solar obligation. Article 45a of the Energy Act states that when constructing new buildings with a relevant area of more than 300 square metres, a solar system such as a photovoltaic or solar thermal system must be installed on the roof or on the facades of these buildings. The cantons may provide for stricter regulations (eg, smaller relevant area). It is noteworthy that most cantons already had such provisions in place prior to the adaption of the federal provision. The cantons can also provide for exceptions, especially if:

• the solar obligation contradicts public law provisions;
• it is not technically possible; or
• it is economically disproportionate.

Currently, the solar obligation is limited until 31 December 2025. However, the Swiss federal government is already discussing the permanent introduction of the provision, as well as extensions such as the requirement to cover parking lots of a certain size with solar panels. Moreover, certain cantons also want to introduce a solar obligation for existing buildings.

By ratifying the Paris Agreement, Switzerland has committed itself to the goal of aligning financial flows in a climate-friendly manner. The Climate and Innovation Act – if accepted in the popular vote on 18 June 2023 – would be the first formal legislation adopted on this subject. It would enable the Swiss federal government to conclude agreements with banks, asset managers, pension funds and insurance companies that serve to define concrete climate targets and measures. Since 2017, through the Paris Agreement Capital Transition Assessment (PACTA), Switzerland regularly assesses the climate compatibility of the entire Swiss financial market. In 2021, the Federal Council issued a report on how Switzerland can align financial flows in a climate-compatible way. Based on this report, the Federal Council is currently evaluating the implementation of transparency measures (eg, to avoid greenwashing) through financial market legislation.