ESG Framework in Switzerland

The ESG framework in Switzerland is constantly expanding. Switzerland has ratified the Paris Agreement and is implementing the goals of the treaty in various national laws. In late 2022, the Federal Council declared its intention to position the Swiss financial sector as a leader in sustainable development; since then, the regulation of sustainable finance is gaining momentum. New self-regulation to combat greenwashing in the financial sector entered into force in September 2024 and a new provision applicable to all sectors will come into effect on 1 January 2025. Swiss companies operating in the European Union must comply with specific sustainability requirements set out in the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD), and work is underway to align Swiss law with these and other European regulations.

The most important developments are outlined below.

Sustainability Disclosure Requirements

Assessment of the first reporting year

Large listed companies and companies subject to the supervision of the Swiss Financial Market Supervisory Authority (FINMA) were required to publish a non-financial report for the first time in 2024 for the 2023 financial year, in accordance with Article 964a et seq. of the Swiss Code of Obligations (CO). The Ordinance on Mandatory Climate Disclosures has also been applicable to these companies since 1 January 2024.

The Swiss foundation Ethos, which specialises in socially responsible investing, conducted an evaluation of this first year of non-financial reporting. Ethos found that the reports received a high level of support from shareholders, with all of them being approved by an average of over 97% of votes. However, Ethos raised several concerns about the quality and transparency of the reports, including the following key points:

• internationally recognised standards were applied in only half of the cases;
• the reports were not audited or verified by independent external auditors; and
• there was a lack of transparency, particularly with regard to certain climate-related information.

Preliminary draft amendment to the Swiss Code of Obligations

On 26 June 2024, the Swiss Federal Council published a preliminary draft amendment to Art. 964a et seq. of the CO in order to strengthen the obligations imposed on companies regarding sustainability disclosure requirements and to align Swiss law more closely with the CSRD.

Key proposed amendments include the following.

• Expanded scope of reporting: the draft amendment extends disclosure obligations to companies with at least 250 employees (instead of 500 under the current legislation). Additionally, it will be sufficient for companies to meet two out of three criteria (number of employees, turnover, balance-sheet total) for two consecutive years to fall within the scope. This change could significantly increase the number of Swiss companies required to disclose sustainability information.
• Detailed report content: companies will be required to report on environmental, social (including human rights), and governance (ESG) issues based on the principle of double materiality (the extent to which this principle already applies under the current regulation is controversial, and is clearly emphasised in the draft amendment).
• Standards and equivalence: the draft amendment allows companies to report in accordance European Sustainability Reporting Standards (ESRS) or other standards deemed equivalent by the Federal Council, such as the International Financial Reporting Standards (IFRS) on sustainability disclosure and the Global Reporting Initiative (GRI) Standards.
• Assurance and audit: the draft amendment requires sustainability information to be assessed by an auditor or an accredited conformity assessment body, in line with the requirements provided under European law. The Swiss Federal Council will need to determine the scope of the assessment in an Ordinance.
• Abolition of the “comply or explain” principle: the draft amendment abolishes the “comply or explain” principle, which currently allows companies to choose not to disclose certain information if they provide an explanation.

The preliminary draft is based on an impact analysis commissioned by the Swiss Federal Council, which indicates that up to 50,000 Swiss companies could be affected by the European rules on sustainability disclosure.

The consultation procedure on the preliminary draft ended on 17 October 2024. The changes made as a result of this procedure will still have to be adopted by the Swiss Parliament.

Trends in Sustainable Finance

Climate- and nature-related risks

In addition to the disclosure requirements imposed on large banks and insurance companies by Article 964a of the CO, banks and insurers subject to supervision by the FINMA are required by prudential regulations to disclose specific information on climate-related financial risks. The scope of the disclosures has been specified in various FINMA Circulars (such as Circulars 2016/1: “Disclosure – Banks” and 2016/2: “Disclosure – Insurers”, which impose specific disclosure requirements on the largest institutions (supervisory categories 1 and 2 for banks, and supervisory category 2 for insurers), amended in 2021) and FINMA Guidance 01/2023 (Developments with regard to the management of climate risks).

FINMA is of the view that an integrated approach to climate risks and other nature-related risks would be appropriate, and has enacted a new Circular on nature-related risks that will enter into force on 1 January 2025. This new circular is based on the recommendations of international standard-setting bodies (in particular, the Basel Committee on Banking Supervision (BCBS) and the International Association of Insurance Supervisors (IAIS)). It will apply to all supervised entities, irrespective of their supervisory category, and explicitly requires the integration of nature-related risks into governance processes and structures. FINMA refers to these nature-related risks as “risk drivers” that affect traditional risk categories, including credit risks, market risks, liquidity risks, operational risks, and reputational risks.

Furthermore, the Ordinance on Mandatory Climate Disclosures that entered into force on 1 January 2024 will be revised next year to include minimum requirements for the transition plans of financial institutions.

Self-regulation

The regulatory approach to sustainable finance is based on principles such as the primacy of market-based solutions and the subsidiarity of government action. However, the growing demand for ESG Investments and transparency, coupled with the developments in the European Union, specific rules are becoming increasingly necessary. In 2022, the Swiss Federal Council published its position on the prevention of greenwashing in the financial sector and outlined the key points that it expected the financial sector to implement through self-regulation.

On this basis, the Asset Management Association Switzerland (AMAS), the Swiss Bankers Association (SBA) and the Swiss Insurance Association (SIA) have recently revised (or published) their self-regulatory provisions to establish inter alia uniform standards for labelling sustainable investment products.

AMAS

The AMAS initially published a self-regulation on transparency and disclosure for sustainability-related collective assets, which came into force on 30 September 2023. This self-regulation establishes binding guidelines for AMAS members that manage and produce collective investment schemes in relation to sustainability. The AMAS seeks to enhance transparency and governance in asset management, thereby contributing to a more sustainable financial landscape.

In response to identified gaps in relation to the prevention of greenwashing, the AMAS amended this regulation by introducing Self-Regulation 2.0 on transparency and disclosure for sustainability-related collective assets, in force since 1 September 2024.

SBA

The SBA implemented two self-regulations in the field of sustainable finance, effective from 1 January 2023. These include the guidelines for the financial service providers on the integration of ESG preferences and ESG risks into investment advice and portfolio management, which aim to ensure that all advisors possess sufficient understanding of ESG issues and integrate them into the advisory process. The second regulation is the Guidelines for mortgage providers on the promotion of energy efficiency, which obliges mortgage providers to ensure that their client advisors and mortgage specialists undergo appropriate and regular training on procedures to maintain long-term property value and improve energy efficiency.

The revised version of the guidelines on the integration of ESG preferences and ESG risks entered into force on 1 September 2024 and includes provisions on the prevention of greenwashing.

SIA

The SIA adopted a self-regulation to prevent greenwashing in sustainability-related unit-linked life insurance. This self-regulation outlines requirements for organisational structures, product development, and distribution processes. It will enter into force on 1 January 2025.

New provision on green claims in the Unfair Competition Act

As part of the revision of the Federal Act on the Reduction of CO2 Emissions, the Swiss parliament has amended the Unfair Competition Act (UCA) to introduce a new provision (Article 3 para. 1 lit. x), specifically addressing Green Claims. This new provision will enter into force on 1 January 2025. It provides that anyone who gives information about themself, their goods, their work or their services concerning the impact on the climate which cannot be proven on objective and verifiable bases is acting unfairly. In other words, any climate claims about a company’s impact, products, or services must be supported by objective, verifiable evidence in order to be considered fair. This provision is likely to be applicable, among other areas, to corporate communications, information published in non-financial reports, or advertisements.

Under the UCA, any person who is threatened in any way, or suffers damage to their customer base, their credit or professional reputation, their business operations or to their economic interests may take legal action. This right also applies to the following:

• customers whose economic interests are threatened or damaged;
• professional and trade associations authorised under their articles of association to safeguard the economic interests of their members;
• organisations of national or regional importance which, in accordance with their articles of association, are dedicated to consumer protection; and
• the Swiss Confederation, if it deems it necessary in order to protect the public interest.

Non-compliance may result in the civil or criminal penalties already provided for under the UCA.

Contrary to the European proposal for a Green Claims Directive, adopted in March 2023, Switzerland does not (at least for the time being) require ex ante verification by an independent body.

Further Initiatives and Outlook

Other initiatives have emerged, such as the parliamentary proposal introduced in September 2023 to establish a voluntary “Sustainable Enterprise” status. This initiative was based on a white paper published by B Lab Switzerland in May 2023, entitled “Sustainable Entrepreneurship in Switzerland: The Opportunity for a New Legal Framework”. Broadly speaking, the proposal aimed to provide Swiss small and medium-sized enterprises (SMEs) with the voluntary option to incorporate social, environmental, and governance considerations into their statutes and strategies, in line with the 2030 Agenda for Sustainable Development. The goal was to create an optional legal status for SMEs making particular efforts in these areas.

The initiative has been rejected for the time being, pending the results of another initiative concerning the potential impact of European directives on Swiss SMEs.

The possibility of aligning Swiss law with the European Corporate Sustainability Due Diligence Directive (CSDDD) remains under consideration. Swiss companies are already affected by the CSDDD both directly, due to its extraterritorial scope (applying to enterprises generating more than EUR450 million in turnover within the European Union), and indirectly, by being part of the value chain of a European company directly subject to the CSDDD. The Swiss Federal Council has confirmed its intention to pursue corporate sustainability regulation that is coordinated at international level. It also plans to first analyse the effects of the CSDDD on Swiss companies and to look at how it is implemented by European member states.

ESG Litigation and Enforcement

Association KlimaSeniorinnen Schweiz vs. Switzerland

The association KlimaSeniorinnen Schweiz and four of its members brought lawsuits against the Swiss Federal Department of Environment, Transport, Energy and Communication, which were dismissed by the Swiss Federal Administrative Court and the Swiss Federal Supreme Court for lack of standing. They subsequently filed individual complaints with the European Court of Human Rights (ECtHR) in Strasbourg.

The plaintiffs argued that Switzerland’s climate-protection measures were not sufficient to achieve carbon neutrality by 2050 and to limit global warming to 1.5°C. They claimed that climate change posed a particular threat to elderly individuals and that Switzerland’s inaction, as well as denial of standing before national courts, violated their rights under the European Convention on Human Rights (ECHR).

On 9 April 2024, the Grand Chamber of the ECtHR ruled in favour of KlimaSeniorinnen Schweiz in a landmark judgment.

The ECtHR found that climate change has the potential to impair the exercise of Convention rights, particularly the right to respect for private and family life and potentially the right to life, which member states are under an obligation to protect. Consequently, by failing to take adequate measures to combat climate change, Switzerland violated the applicants’ right to private and family life under Article 8 of the ECHR.

Despite the particularly stringent requirements for victim status under the Convention, the ECtHR recognised that environmental associations may have the right to sue, provided that they meet the following criteria:

• they are lawfully established or have standing in the relevant jurisdiction;
• they demonstrate that they pursue a specific purpose, in accordance with their statutory objectives, in defending the human rights of their members or other affected individuals within the relevant jurisdiction; and
• they demonstrate that they are genuinely qualified and representative to act on behalf of members or other affected individuals within the jurisdiction who face specific threats or adverse effects of climate change on their lives, health, or well-being as protected under the ECHR.

On 28 August 2024, the Swiss Federal Council declared that it considered Switzerland to be in compliance with the requirements of the climate policy ruling. With the revision of the Federal Act on the Reduction of Greenhouse Gas Emissions (CO2) on 15 March 2024, Switzerland has defined measures to achieve its climate objectives by 2030. The ECtHR did not take this development in Swiss climate policy into account in its ruling, nor did it consider the Swiss Federal Act on a Secure Electricity Supply from Renewable Energy Sources (approved on 9 June 2024).

The Swiss Federal Council is also opposed to the extension of the right of appeal of NGOs in climate matters. In its view, this would further complicate the construction of urgently needed infrastructure. However, the Swiss Federal Department of Justice and Police (FDJP) has been instructed to draw up a report for the Federal Council by the end of 2025 on the impact of this ruling on the practice of the federal administration and the courts regarding the right of appeal of associations. In so doing, the Swiss Federal Council will also be able to take into account any subsequent developments in case law and the actions of other states party to the ECHR.