Swiss risk managers face up to new ESG reporting rules

Switzerland risk managers at firms regulated by the Swiss Financial Market Supervisory Authority (Finma) must get up to speed on new ESG reporting requirements from their government and the EU. In a guidance note published by Geneva-based law firm Lenz & Staehelin, Valerie Menoud explains that the recently enacted Articles 964a to 964c of the Swiss Code of Obligations (CO) require large Swiss public interest companies to report annually on non-financial matters in 2024. The new requirement covers environmental, social and employment-related matters and respect for human rights, and anti-corruption. The new Swiss non-financial disclosure rules apply to large Swiss publicly traded banks, insurance companies and securities firms. The rules cover those with a balance sheet total of CHF20m or a turnover of CHF40m, and at least 500 full time employees on an annual average basis over the course of two consecutive years. This includes controlled entities worldwide. The new Swiss ESG reporting rules come into force following the EU’s adoption of the Corporate Sustainability Reporting Directive (CSRD) back in November. Menoud explains that the Swiss Climate Ordinance details climate-related reporting required as part of new environmental disclosure rules. Reports on non-financial matters, including the climate-related disclosure, will have to be adopted by the board of directors and approved by shareholders. Large Swiss public interest companies are now required to disclose the effects of climate change on their activities and the effects of their activities on climate change, in line with the general "double materiality" of the CO. In order to comply with the requirements, the climate disclosures must meet the following three cumulative conditions: Follow the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and its annex implementing the recommendations of the TCFD, taking account of the TCFD's cross-sectoral and sector-specific guidance, as well as, where possible and appropriate, its guidance on metrics, targets and transition plans. “In a nutshell, this should lead to covering 11 climate topics, structured around the following four themes: governance, strategy, risk management, and metrics and targets,” explains Menoud. Include a climate transition plan comparable with the Swiss climate goals. Covered firms must also provide quantitative CO2 targets and, where relevant, targets for other greenhouse gases. Where possible they should also provide information on all greenhouse gas emissions, including scope 3 emissions, for their entire value chain. Allow for a qualitative and quantitative overall assessment of the effectiveness of the measures taken in connection with climate issues. Under the new rules, financial institutions are also required to include forward-looking, scenario-based climate compatibility analyses when implementing their TCFD sector-specific guidance. “Where no climate reporting concept or information on climate issues is included or is only partly included in the non-financial report, the company needs to provide a clear and motivated explanation as to the reasons for this gap in its report. This so-called "comply or explain" approach has the effect of making the TCFD recommendations the mandatory basis for climate reporting,” explains Menoud. For the time being, neither the Climate Ordinance nor the broader Swiss rules on non-financial matters require independent third-party verification or audit of climate disclosures, contrary to what will apply in the EU under the CSRD, she adds. The Climate Ordinance will enter into force on 1 January 2024. The first reports on non-financial matters that year will, therefore, have to include the mandated climate disclosures under the Climate Ordinance and be made available electronically.

Swiss risk managers face up to new ESG reporting rules

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