Companies affected by corporate social responsibility obligations
Despite the rejection of the Corporate Responsibility Initiative ("CRI") in November 2020, corporate social responsibility ("CSR") issues remain with us. In the run-up to the CRI vote, parliament drafted an indirect counter-proposal to amend the Code of Obligations ("CO"), which incorporates some aspects of the CRI into current law. This will lead to new due diligence and transparency obligations being imposed on companies. The referendum deadline expired unused on 5 August 2021. The consultation on the implementing ordinance for the indirect counter-proposal ended on 14 July 2021. The evaluation of the consultation and thus the final version of the implementing ordinance are still pending. The new standards are expected to enter into force on 1 January 2022.
An overview of all new CSR obligations and the companies affected by them can be found in our blog post from 3 June 2021. This article deals specifically with the transparency and due diligence obligations of companies where there is a reasonable suspicion of child labour within the supply chains.
Suspicion of child labour
A company with its registered office, head office or principal place of business in Switzerland that offers products or services for which there is a reasonable suspicion that they have been produced or provided by children may fall under the new due diligence and transparency obligations.
The first draft of the "Ordinance on Due Diligence and Transparency in the Sectors of Minerals and Metals from Conflict Areas and Child Labour" ("ODDT") further elaborates on the adjustments to the Code of Obligations. If a company pursues a business model in which there is no suspicion of child labour, it does not fall under the new transparency and due diligence obligations. The initial draft of the ODDT went out for consultation in mid-April. The results of the consultation have been published in the meantime, but have not yet been evaluated.
According to the first draft of the ODDT, the following definitions should apply:
- Supply chain: The value chain of a company, which includes its own business activities and those of all economic operators and actors who offer products or services for which there is a justified suspicion that they have been produced with the use of child labour.
- Justified suspicion of child labour: A suspicion must be based on concrete internal or external indications.
The Ordinance provides for the following exemptions from the transparency and due diligence requirements:
- Small and medium-sized businesses: If a company falls below two of the following sizes in two consecutive business years: Balance sheet total of CHF 20 million, sales revenue of CHF 40 million or 250 full-time positions on an annual average.
- Low risk countries: Products or services are sourced from countries with a low risk of child labour. ODDT refers to the UNICEF Children's Right in the Workplace Index. Countries classified as "basic" in the index are considered low-risk countries.
Note: The United States is listed as "enhanced" according to the Children's Right in the Workplace Index.
- International codes of conduct: The application of an international set of rules exempts from compliance with due diligence obligations and reporting. The following regulations must be complied with cumulatively: ILO Conventions 138 and 182 and either the ILO-IOE Child Labour Guidance Tool for Business or the OECD Guide to Responsible Business.
- Supply chain policy
Obligated companies must ensure due diligence in the form of a supply chain policy. This policy must be implemented in order to identify and assess harmful risks. Thus, companies are required to have a supply chain policy that allows them to know and control suppliers and sub-suppliers so well that child labour can be immediately identified and prevented.
(i) Tools for identifying risks
A company must demonstrate how it identifies, assesses, eliminates and prevents incidents of child labour in its supply chain. This can be done through on-site inspections, the use of experts and literature (e.g. publicly available studies), or by obtaining information. Information from authorities, international organisations or social organisations must be taken into account when obtaining information. A rumour alone does not suffice as a suspicion of child labour. Rather, the information must be plausible, comprehensible and supported by text. In order to avoid problems at an early stage, however, rumours should not simply be ignored but checked for plausibility, especially if a rumour persists. In order to get as objective a picture as possible, it is helpful to consult various sources of information. Furthermore, ILO Conventions 138 and 182 should be observed as a minimum standard.
The current supply chain policy must be publicly accessible (e.g. by publication on the homepage). In particular, suppliers must also be informed about it. The ordinance requires that the supply chain policy be integrated into contracts with suppliers, which will inevitably lead to contract adjustments.
Furthermore, companies must ensure that "concerns" about child labour in the supply chain can be reported by all interested parties. This can be done, for example, through a publicly accessible email address or telephone hotline.
Furthermore, traceability of the supply chain must be possible. For this purpose, companies must keep an (internal) list of all service providers in their entire supply chain so that all suppliers can be identified at any time. The list must include a description of the product or service (incl. trade name) as well as the name, registered office address of the supplier and the production facility or service provider and the foreign country. In the case of group companies, it is advisable to keep this list jointly, e.g. by means of a document that is accessible from all sides within the system.
(iii) Assessment of risks and appropriate measures
Risks are ultimately determined on the basis of the defined supply chain policy and the information obtained. Risks must be identified and assessed. The probability of occurrence and the harmful effects are to be taken into account. Of course, it is never possible to cover all risks. According to the law, a risk-based approach should be applied in risk assessment. A company must (only) make an effort, i.e. work towards ensuring that risks are identified and assessed.
When identifying and assessing risks, a company can use the ILO-IOE Child Labour Guidance Tool for Business as a guide.
Once risks have been identified, "appropriate", i.e. reasonable and risk-based measures must be taken. Measures must be continuously monitored and, if necessary, adapted to the situation. Finally, the company must communicate the results of the measures to the outside world.
- Risik management plan
With a risk management plan, companies should respond to the identified and assessed risks. The risk management plan must mitigate the identified risks or prevent them from materialising. The written plan should set out a strategy and the objectives to be pursued. Among other things, the plan must reflect the methods used for risk analysis and risk assessment, as well as contain approaches for risk minimisation. At the moment it not clear from the current legal material how detailed the risk management plan should be. A company that is exclusively active in areas that repeatedly struggle with child labour (e.g. textile industry) should have a more detailed risk management plan than a company that is confronted with possible child labour in individual areas due to rumours.
In companies that are obliged to comply, the board of directors must report annually on compliance with the due diligence requirements in the supply chain. Within six months after the end of the business year, the board of directors must prepare this report in an official language or in English. The report must remain publicly available for ten years. Exempt from reporting are companies that distribute products from other companies, which have prepared a report themselves. It is expected that the first report will have to be prepared for the 2023 business year.
Companies that are suspected of using child labour in their supply chain should clarify the following:
- Is the company active in an economic sector in which child labour is generally a problem?
- If the answer to the first question is "yes": Does the company source its goods or services from countries that are classified as "enhanced" or even "heightened" according to the UNICEF Children's Right in the Workplace Index?
- If the second question was also answered with "yes": Are there any specific suspected cases of child labour within or outside the company within the supply chain?
If a board of directors answers questions 1 - 3 with "Yes", the company is subject to the transparency and due diligence obligations and must monitor its supply chain accordingly and report on it. As part of these measures, supplier contracts must be reviewed and, if necessary, adjusted if they do not yet include audit options for suppliers and sub-suppliers.
If, on the other hand, either question 2 or 3 is answered with "No", there is no obligation for this company to take action. The board of directors should record this in the minutes. However, even if there is currently no obligation to act, the board of directors should still answer questions 1 - 3 again at least once a year or immediately upon the existence of a justified suspicion of child labour, in order to be able to react promptly to a change in circumstances.
Co-author: Luljeta Morina
Category: Corporate and Commercial