Referendum or no referendum: human rights due diligence isn’t going away for Swiss companies

Anna Triponel and Maddie Wolberg | 3 December 2020

On Sunday November 29, Swiss voters voted on a proposed constitutional amendment to require Swiss companies to conduct assessments of their human rights and environmental risks in their supply chains. The proposal would have implemented mandatory due diligence requirements for companies headquartered in Switzerland. The objective was to give companies a framework to identify and address harms to people and planet that they are involved with in the course of doing business. 

Although a majority of voters wanted it, the proposal did not pass the referendum – because of its rejection by Swiss cantons. Regardless, the main drivers behind it—namely, the quest for increased corporate transparency, accountability and remedy for business’s adverse impacts on people and planet—are not going anywhere. Not only that, but the Swiss proposal was just one example within a growing constellation of regulatory initiatives to mandate corporate human rights and environmental due diligence. One thing is certain: companies operating in Switzerland that are selling into the global marketplace will be subject to similar legislation, sooner rather than later.

Let’s start with a brief primer: What is meant by ‘human rights due diligence’ and why are people talking about it? 

Human rights due diligence is the process by which businesses identify, prevent, mitigate and account for their adverse human rights impacts – throughout their operations and business relationships. In short, this means reflecting on how a company can know, and show, that it is indeed managing how it could negatively impact people by virtue of running its business. This includes looking at impacts that occur beyond the company’s own operations – in its supply chain or downstream (for instance, related to its customers). 

Beyond being expected by soft law (captured in the UN Guiding Principles on Business and Human Rights) and increasingly hard law (which we’ll talk more about later), a growing number of companies are conducting human rights due diligence because it helps them:

  • Shine a light on potential ‘blind spots’ where harms might be occurring
  • Build strong and valuable relationships with company stakeholders
  • Proactively identify and mitigate human rights risks that might come up in the future
  • Manage and avoid legal risks and damage to its reputation 
  • Demonstrate the company’s commitment to operating responsibly to its stakeholders—including workers, customers, suppliers, investors, civil society organisations and governments. 

What is the Swiss Responsible Business Initiative and what happened during the referendum?

In 2016, a coalition of NGOs, entrepreneurs, politicians and Swiss citizens introduced the Responsible Business Initiative (RBI) proposal to the Swiss Parliament. The proposal called for a new provision in the Swiss Federal Constitution that would require all companies based in Switzerland to conduct mandatory human rights and environmental due diligence in their own operations and in their supply chains. This provision would also impose legal liability and penalties for companies that did not comply. 

Between 2016 and 2020, the proposal came before Parliament and the Federal Council (the executive branch of the government) for review and a counter-proposal was developed by the Council of States, Parliament’s Upper House, which proposed less stringent requirements for companies (the counter-proposal). (For a full accounting of the years-long legislative process, read the RBI’s timeline here or our high-level summary and context of the RBI from earlier in the year.)

On 29 November 2020, Swiss citizens voted on a referendum to decide whether the RBI amendment would be added to the Constitution. The proposal failed, with 50.7% of Swiss voters supporting it but only 8.5 of 23 Swiss cantons voting in support—less than the 12 required for the initiative to pass. 

Reporting on the outcomes of the referendum, media outlet noted that a split between the popular vote and the vote by canton is “very rare.” Interestingly, it also reported that the split tended to fall along cultural and linguistic lines: “Cantons notably in the German-speaking part of the country, refused the proposal for a constitutional amendment to impose new standards on Swiss companies’ activities abroad. But most cantons in the French- and Italian-speaking parts of Switzerland as well as urban regions voted in favour.” French newspaper Le Monde reported similar dynamics, reporting that in the German-speaking canton of Zug, 64.8% of voters rejected the proposal. 

Source: Jessica Davis Plüss, Responsible business initiative rejected at the ballot box, (29 November 2020)

What are the next steps for business and human rights-related legislation in Switzerland?

There are several possible ways forward following the referendum. Law firms Ropes & Gray and Bär & Karrer summarise the process in a briefing: since the RBI proposal did not pass, the counter-proposal developed in June 2020 by Parliament’s Upper House may come up for a popular vote if one of two things happens within the next 100 days: a petition receives at least 50,000 signatures to bring the counter-proposal to a referendum; or at least 8 cantons request to hold a referendum. If no popular vote is held, the counter-proposal will automatically come into force. 

Below are some of the key points about the counter-proposal, officially known as Contre-projet indirect à l’initiative populaire «Entreprises responsables – pour protéger l’être humain et l’environnement»:

  • Who it applies to: The counter-proposal will apply to large, publicly-traded companies headquartered in Switzerland that employ at least 500 full-time employees and have turnover of at least CHF 40 million or total assets of at least CHF 20 million. 
  • What it requires from companies: Companies must continue to report publicly on their due diligence efforts in their operations and supply chains, in line with existing requirements under the EU Non-Financial Reporting Directive. The counter-proposal also introduces new requirements that will obligate companies to report on due diligence efforts around conflict minerals and child labour. 
  • How it will be enforced: Swiss companies may face fines of up to CHF 100,000 if they do not comply with their reporting duties under the law. 

EY’s Swiss group provides an analysis of the details of the counter-proposal, including the following overview:

Source: EY, The day after the vote: Responsible Business Initiative, Webcast (30 November 2020)

What has been the response to these developments?

Responses to the failed RBI proposal have ranged from relief to disappointment. 

The Swiss Federal Council had been opposed to the RBI proposal, along with a number of business associations and companies. Reuters quoted Justice Minister Karin Keller-Sutter, a member of the Federal Council, as stating that: “The Federal Council is pleased with the result, but is also aware that many who have fought for years for the initiative are disappointed today.” According to Minister Keller-Sutter, “[t]he Federal Council is convinced that [the less stringent counter-proposal] is a good way to achieve the common and undisputed goal of better protecting human rights and the environment.” Business federation Economiesuisse, which represents around 100,000 companies, industry associations and cantonal chambers of commerce, expressed its relief that the proposal had failed citing concerns over business uncertainty and additional burdens for small- and medium-sized enterprises.

On the other side, a number of human rights and legal experts are concerned that the counter-proposal does not go far enough. There was a sense from many observers that the failure of the RBI reflects a missed opportunity for Switzerland—and for Swiss companies, who will need to compete in a global market increasingly attuned to more, rather than less, due diligence and disclosure. Co-chair of the RBI committee and former Swiss politician Dick Marty told that Switzerland “risks once again being behind, as was the case with [regulations on] money laundering or banking secrecy.”

At the same time, proponents of the RBI proposal were heartened by the fact that it garnered the majority of the popular vote. Advocacy organisation Greenpeace Switzerland released a statement expressing its disappointment at the outcome, but remarked that popular support for the proposal signaled that there is appetite from citizens to hold companies to account for human rights abuses and pollution. Florian Wettstein, Professor of Business Ethics at the University of St. Gallen, said to, “This should send a clear message to companies that they need to get their act together. It also sends a message to our politicians to really take the issues seriously and be open to stronger measures.”

What does this development mean in the larger context of the trend towards mandatory human rights and environmental due diligence?

Although the Swiss RBI proposal did not pass, there is a broader trend globally where regulators are adopting laws requiring companies to conduct human rights and environmental due diligence on risks in their operations and supply chains. The bottom line for all companies is that mandatory due diligence is not going away, especially with the EU and European companies leading the charge. Whether companies are headquartered in Europe, have operations in Europe or sell to European customers, mandatory due diligence regulations will affect them. 

There are an increasing number of laws requiring companies to disclose their human rights impacts and the actions they’ve taken to mitigate them. This is legislation that requires companies to go beyond basic disclosure of risks, like exposure to conflict minerals or forced labour. Rather, the direction of travel is increasingly towards regulations that create a duty of care and compel strong human rights due diligence—with the implication that failing to do so will open a company up to civil or criminal liability. This ‘second generation’ of business and human rights laws are also one of the key pathways for people who have been harmed by business activities to access legal remedy, even when abuses have occurred abroad.  Some of the most important and most recent developments in duty of care laws are listed below:

  • France: The French law related to Duty of Vigilance of Parent Companies and Commissioning Companies asks large French companies to identify and prevent risks of severe abuses to human rights, the environment as well as health and safety. Companies must establish and implement a vigilance plan to be published in their annual report which describes how they are meeting this duty. 
  • The Netherlands: The Dutch Child Labour Due Diligence Act requires companies selling into the Dutck market to carry out due diligence in their supply chain to assess whether there is a reasonable suspicion that products in companies’ supply chain have relied on child labour, and create an action plan where child labour is found.
  • European Union: In 2021, the EU will introduce mandatory human rights and environmental due diligence legislation. The law will apply to companies incorporated and/or domiciled in an EU Member State, as well as companies established outside the EU selling goods or services in the internal market. It will require them to conduct due diligence across their supply chains and publicly disclose the results and steps taken to mitigate any human rights and environmental risks they uncover. Importantly, it will also hold companies liable for negative impacts on people and planet, ensuring that victims have access to remedy in EU courts. You can read more about the ongoing discussions and what the law might include here, here and here
  • Belgium: Within the last week, a group of almost 20 Belgian civil society organisations published a call to adopt a duty of care law applying to Belgian companies. Their memorandum pointed towards the forthcoming EU law as a model for possible Belgian legislation.
  • Other proposed initiatives: Countries including Germany, Finland and Italy are also discussing possible mandatory due diligence requirements.

This development builds on ‘first generation’ business and human rights laws focused on disclosure, which you can read more about here. And beyond this, we have seen U.S. law (Section 307 of the U.S. Tariff Act) be used to stop goods from being imported into the U.S. where they are viewed as having been made in conditions of forced labor. 

This momentum suggests that – regardless of whether the Swiss referendum passed – Swiss companies competing in the global marketplace will increasingly be subject to human rights and environmental due diligence requirements. Over time, global trends elsewhere will push further legislative changes in Switzerland. A mandatory human rights due diligence law for Switzerland is not a matter of if but of when. As Dick Marty put it to, “If victory doesn’t come today, it will certainly come tomorrow.”

As a reminder, please note that Anna Triponel is no longer a practising solicitor and does not purport to provide legal advice.

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