Transparency on Non-Financial Matters

1. Introduction

Casus :
Bank X. Ltd is an independent banking institution with less than 1000 employees, authorised by FINMA, but not listed on the stock exchange, with its registered office in Geneva and which, under its articles of association, only conducts business in Switzerland.

The Chairman of the Bank’s Board of Directors has heard that his institution will be subject to new legal obligations that affect non-financial issues.

Quid ?

2. What are the bank's legal obligations in relation to non-financial matters ?

Legal basis :

• Switzerland : Art. 964a et seq. CO
• Public interest company → Article 2 letter c of the Auditor Oversight Act (“AOA”)
• together with the Swiss or foreign undertakings that they control, they have at least 500 full-time equivalent positions on annual average in two successive financial years; and
• for two consecutive financial years, they exceed a balance sheet total of CHF 20 million or a turnover of CHF 40 million (Art. 964a para. 1 CO)
• Exceptions : Art. 964a para. 2 CO
• Art. 2 let. c AOA: (1) Art. 727 para. 1 section 1 CO, or (2) Art. 3 Financial Market Supervision Act (“FINMASA”), or (3) Art. 118a CISA
• Art. 3 FINMASA → Art. 3 para. 1 Swiss Banking Act
• EU : CSRD and CSDDD
• Direct or indirect application

Content of the non-financial report (Art. 964b CO) :

• environmental issues, including CO2 targets
• social issues and employee-related issues, respect for human rights and the fight against corruption
• information relating to the development of the company’s business, performance and situation
• Principle of dual materiality (impact of the company on environmental, social and governance issues on sustainability and impact of sustainability on the company)

3. Which organs must fulfil and formalize the legal obligations relating to non-financial reporting ?

• The Board of Directors is responsible for drafting the report (Art. 716a para. 1 sections 1, 2 and 5 CO).
• The report must then be approved by the General Assembly, in accordance with Article 964c CO cum Article 698 para. 2 section 4 CO.
• The Swiss Federal Council has stated that the vote is binding, not consultative.
• The report must also be published electronically immediately after approval and must remain accessible for at least ten years (art. 964c para. 2 CO).
• Obligations of transparency and diligence extend the duties of the board of directors.
• Adoption and implementation of a process and clear criteria for collecting relevant and reliable data for the non-financial report.
• Integration of a sustainability concept into the company’s risk management policy => take account of events or situations relating to environmental, social or governance issues that may have a negative impact on the company
• Technological, operational and economic challenges
• Transparency required by the new provisions of the CO may affect the protection of business secrets.
• It requires an understanding of sustainability issues and the ability to integrate them into the company.
• Senior managers need to develop expertise in the field of sustainability in order to understand and control the impact of ESG issues on the company.

4. What are the legal risks if the non-financial report is not drawn up ?

Civil law

• Liability of the Board of Directors (Art. 754 CO) for breach of the duty of management under Article 716 para. 1 sections 1, 2 and 5 CO.
• However, a liability action would be very difficult to implement in view of the conditions that must be met for such an action to get through.

Criminal law

• Failure to comply with other reporting requirements (Art. 325ter Swiss criminal law)