09 February 2024

ESG: From Voluntary to Mandatory Climate Transition Plans in Switzerland and the EU

  • Articles
  • Compliance
  • Legal
  • Banking / Insurance
  • Governance / ESG

Switzerland committed to achieving Net Zero emissions by the year 2050. This ambitious target aligns with global efforts to combat climate change and transition to a more sustainable future (“Paris Agreement”).

  • Dr. Martin Eckert

    Legal Partner

  • Adrian Peyer

    Legal Partner

Requirements for Swiss Companies to Disclose a Transition Plan:

Art. 964a-c of the Swiss Code of Obligations (CO) relate to reporting obligations for environmental, social, and governance (ESG) matters for large Swiss companies and apply from calendar year 2023 with reporting requirement for the first time in 2024.

In addition, as of 2024 onwards (reporting year 2025), such companies need to report on climate related matters (Ordinance on the Reporting of Climate Matters (ORCM)).

According to the ORCM, it is assumed that companies comply with their climate-based reporting obligations if they follow the recommendations of the Taskforce for Climate-related Financial Disclosures (TCFD). Disclosure must include all greenhouse gas emissions, as well as emissions targets and the standards, assumptions and methods applied. Companies are also required to include climate transition plans that are “comparable with the Swiss climate goals”.

In accordance with the Paris Agreement’s 1.5°C temperature target, Switzerland has committed to reducing CO2 emissions by at least 50% by 2030 and to achieve carbon neutrality by 2050. The Federal Act on Climate Protection Goals, Innovation and Strengthening Energy Security (Swiss Climate Law), codifies the Switzerland’s 2050 net-zero target into law and sets interim emissions targets of an average reduction of 64% over the period 2031-2040; a 75% reduction by 2040; and an average reduction of 89% over the period 2041-2050. The Swiss Climate Law requires companies to attain net zero direct and indirect emissions (scope 1, 2 and 3) by 2050, and states that they must put in place transition plans to do so. It further introduces a subsidy scheme to replace heating systems with heat pumps and, as a framework law, it further mandates the creation of measures in several fields connected to climate mitigation and adaptation.

The ORCM requires companies to apply the principle of double materiality and to disclose “both the effects of climate change on companies and the effects of companies’ activities on climate change”. In addition, financial institutions will be obliged to provide “forward-looking, scenario-based climate compatibility analyses”.

The ORCM does, however, foresee an opt out in certain circumstances. If a company does not make disclosures on climate issues, it can instead demonstrate that it “complies in other ways” with the disclosure obligation or can “clearly declare that it does not follow any climate concept and justify this decision”. The ORCM does, however, not define the term “climate concept”.

Applicability to Swiss Companies:

Companies meeting the following cumulative criteria are subject to the ORCM:

  • Public Interest Companies (as defined in the Audit Supervisory Act), i.e. FINMA regulated financial institutions, Swiss listed companies and corporate bond issuers.
  • Companies with an annual average of at least 500 FTEs in two consecutive financial years on a consolidated basis (i.e. including all controlled companies).
  • At least one of the following values exceeded in two consecutive financial years: (i) balance sheet total of CHF 20 million, or (ii) turnover of CHF 40 million.

Content of Transition Plans:

To increase the informative value and comparability, the reporting on the implementation of the recommendations in the "Strategy" category in accordance with Art. 3 para. 1 letter b ORCM - particularly with regard to the reduction of CO2 emissions - shall include a transition plan comparable to the Swiss climate targets. Transition plans address and reduce the transition risks that represent the primary climate risks for many companies. They are therefore a mandatory component of a climate report and describe the planned path to transitioning to a low-carbon economy.

However, the ORCM uses words like “where possible and appropriate” and references for example the TCFD “Guidance on Metrics, Targets, and Transition Plans”, version October 2021, which is not very specific and leaves room for interpretation. This can lead to uncertainties for companies on what exactly is required for a Transition Plan.

Furthermore, the ORCM states that the climate disclosures shall be published in the report on non-financial matters. The ORCM states that the electronic publication shall be in at least one human-readable and one machine-readable electronic format in common international use. It shall be made available on the company’s website.

Comparison with EU Requirements in CSRD and CSDDD:

In 2024, the implementation of the Corporate Sustainability Reporting Directive (CSRD) and the newly introduced ESRS E1 (Climate Change) standard as a delegated act under the CSRD, as well as the IFRS sustainability standards S1 and S2, will increase disclosure requirements on climate transition plans and the greenhouse gas emission reduction targets set by undertakings. The adoption and subsequent national implementation of the Corporate Sustainability Due Diligence Directive (CSDDD) and its article 15 (‘combating climate change’) will move climate transition plans into a mandatory context. Although the directive's final wording is as of yet unclear, it is widely understood that with this article 15, the CSDDD will introduce the obligation for individual undertakings, to be implemented in national law, to adopt a transition plan.

Application in the Swiss context?

Switzerland's approach to Transition Plans shares similarities with the European Union's efforts outlined in the CSRD and the CSDDD.

Both Switzerland and the EU emphasize the importance of transparency in disclosing current emission levels and reduction targets. Both require companies to apply the principle of double materiality and to provide a comprehensive strategy for achieving their emission reduction goals. Risk assessment and reporting mechanisms are common elements in both regulatory frameworks.

Based on these developments and as the CSRD mandates companies to report based on the newly issued European Sustainability Reporting Standards (ESRS), one could argue that applying the CSRD and ESRS (instead of TCFD) may be possible in order to comply with the Art. 964b para. 1 and para. 3 CO.

Conclusion:

Switzerland's commitment to Net Zero by 2050, coupled with the requirement for companies to disclose Transition Plans, underscores Switzerland's dedication to environmental sustainability. The similarities between Switzerland's regulations and the EU's CSRD and CSDDD demonstrate a global push towards standardized and transparent reporting mechanisms, fostering a collective effort to combat climate change.

However, the substantive aspects of transition plans remain unclear to a certain extent, which imply a lack of clarity on the precise nature of obligations. And even with guidance available in the market through public and private initiatives around what best-in-class transition plans look like, transition planning as such will remain a steep learning and development curve for all companies over the next years.

Despite these uncertainties, companies that report on their climate impact and take action to reduce their greenhouse gas emissions will be better positioned to succeed in the transition to a low-carbon economy. They will also be better equipped to manage climate-related risks and to identify new business opportunities.

We at MME together with our expert network are available with our ESG-Hub and ESG-Team to guide you through uncertain times.
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