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2 June 2023
ESG is an acronym for environmental, social and governance criteria, which have become major issues for companies and investors worldwide.
ESG, or Environmental, Social and Governance, is a concept aimed at integrating environmental, social and governance considerations to assess the sustainability and responsibility of a company's business practices. These are non-financial factors that investors and companies (at the level of their management bodies and, increasingly, their shareholders) take into account when formulating their development strategy and making business decisions:
Companies are increasingly aware of their impact on the environment, the communities in which they operate and the way in which they are managed. ESG criteria provide a framework for assessing these non-financial aspects and integrating sustainability and social responsibility into economic decision-making. On the one hand, investors, consumers and regulators are paying increasing attention to companies that adopt sustainable and environmentally-friendly business practices; on the other, by integrating ESG criteria into their strategies, economic players hope not only to improve their reputation and long-term performance, but also to contribute to a more sustainable and equitable future for all.
As Switzerland strives to meet global standards, these rapidly accelerating commercial developments are accompanied by an equally astonishing expansion of the legislative agenda.
In Switzerland, the cornerstone of the ESG approach is enshrined in art. 2, art. 73 and 95 para. 3 of the Swiss Federal Constitution of April 18, 1999, which expresses the principles of equal opportunity, sustainability and fair order as priority objectives of Swiss economic and social policy. However, the Constitution contains numerous other references to these principles. In agricultural policy, for example, the Confederation ensures that production meets the requirements of sustainable development and respects the environment and animals (art. 104 para. 1 Cst); in food safety, the Confederation creates the conditions for resource-conserving use of foodstuffs (art. 104a lit. e Cst); in foreign policy, the Confederation contributes to promoting respect for human rights and preserving natural resources (art. 54 para. 2 Cst).
In this framework, Swiss companies are encouraged to pay particular attention to environmental, social and governance considerations in their business decisions. And, with that aim, numerous laws now impose a number of duties, directly or indirectly, on Swiss companies.
a) Environmental factors:
b) On social factors: On July 1er 2020, the Federal Act on Gender Equality of March 24 1995 (GEA) was supplemented by a section aimed at accelerating the implementation of equal pay (based on art. 8 para. 3 Cst) within companies employing 100 or more employees, Thus, if a Swiss company has a workforce of at least 100 full-time employees at the start of a calendar year, it must carry out, every 4 years, an internal analysis of equal pay within the company (art. 13a GEA) and obtain a report from an independent body on the result of its analysis (art. 13d para. 1 GEA), inform the employees in writing of the result of the analysis (art. 13g GEA) as well as its shareholders if its shares are listed on the stock exchange (art. 13h GEA).
c) Governance measures
The new Swiss company law, came into force in part on January 1, 2021, and for the balance on January 1, 2023. Two aspects of this revised act directly concern the governance factors of the ESG concept: on the one hand, quotas in company management, and on the other, the fight against abusive remuneration.
In October 2017, Switzerland ratified the Paris Agreement of December 12, 2015, and committed to reducing the use of fossil resources (coal, oil, gas) greenhouse gas emissions in line with the Paris Agreement's objectives i.e. halving CO2 emissions by 2030 compared to 1990 values. The Paris Agreement is a binding legal instrument for the States Parties, but does not confer rights or impose obligations directly on companies and/or individuals. Switzerland is striving to implement the commitments of this Agreement, in particular in the Federal Act on Climate Protection Goals, Innovation and Strengthening Energy Security, which will be put to a popular vote on 18 June 2023.
At its meeting on June 24, 2020, the Federal Council adopted a report (link here) and guidelines on sustainable development in the financial sector. The aim is to make Switzerland one of the world's leading centers for sustainable financial services. To this end, the Federal Council intends to develop the framework conditions in such a way as to improve the competitiveness of the Swiss financial center and enable the financial sector to make an effective contribution to sustainable development. The report examines in detail, with a focus on environmental aspects, thirteen measures concerning sustainability in the financial sector, some of which are also under discussion within the EU. The measures focus on transparency, investment activities, initial and further training, and risks.
Finally, since 2002, the "Swiss Code of Best Practice for Corporate Governance" (SCBC) published by the Swiss business federation "economiesuisse" has largely become a reference in the field of responsible business conduct. It was revised on November 22, 2022 to incorporate developments linked to the new law on public limited companies and the sustained development in the field of sustainability. The Code is non-binding; companies that decide to abide by it remain free to organize themselves as they see fit, but must explain in an appropriate manner why they deviate from one or other recommendation where applicable ("comply or explain" principle).
The following recommendations are particularly relevant to the subject of this blog:
At the end of June 2022, the Swiss Confederation, in collaboration with the financial sector, drew up and published a set of indicators: the Swiss Climate Scores (link here). There are 6 of these indicators, based on recognized standards and intended to contribute to the comparability of financial investments:
At the same time, Switzerland has seen a growing number of private-sector initiatives, particularly in the financial sector, to promote sustainable investment. Examples include :
There are also a number of sustainable finance labels and certifications that can be awarded to players wishing to be recognized as concerned by these issues, such as
Finally, there are more corporate initiatives, such as the Net Zero Lawyers Alliance (https://www.netzerolawyers.com), which aims to mobilize business lawyers, law firms and the legal profession to accelerate the transition to "net zero", and Legal ESG, which brings together opinion leaders to address the business imperative of environmental, social and corporate governance in the legal profession (link here).
In conclusion, ESG has become a crucial issue for Swiss companies. It represents a means of meeting growing expectations in terms of social and environmental responsibility. On the one hand, it seems that companies that adopt sound ESG practices are better placed to manage operational and financial risks, as well as to increase their resilience in the face of market disruption. On the other hand, investors and consumers are increasingly aware of the environmental and social impact of their choices, and are looking for sustainable products and services. By adopting ESG practices, Swiss companies strengthen their reputation and brand image, and improve their long-term financial performance by attracting investors and customers who care about the environmental and social impact of their choices.
Your VISCHER team will be happy to answer your questions.
Author and contact person: Damien Conus
Categories: Banking & Finance, Corporate and Commercial, Private Equity & Venture Capital, Environmental, Social and Governance (ESG)
Attorney at Law
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