In 2024, most companies listed in Switzerland were obliged for the first time to publish a report on non-financial matters in accordance with articles 964a-c of the Code of Obligations. The following article describes the related issues primarily discussed in connection with this year’s AGM season and examines whether clear trends and market practice have already developed in this regard.

 By Thomas Reutter / Philippe Weber (Reference: CapLaw-2024-36)

1) Introduction

Most listed companies are subject to the provisions on sustainability reporting (transparency on non-financial matters in articles 964a to 964c of the Code of Obligations (CO)). These provisions not only prescribe the publication of a report on certain ESG matters but also mandate that such report be approved by the body responsible for approving the annual accounts, i.e. the shareholder meeting (Generalversammlung) in case of Swiss corporations. The provisions on non-financial reporting came into force on 1 January 2022 with a transition period of one year. Listed companies subject to a reporting duty, therefore, had to publish a report on non-financial matters and submit it for approval to the annual shareholder meeting for the first time in this year’s AGM season.

Different approaches to the non-financial report and to the respective shareholder votes were discussed ahead of this year’s AGM season. In this context, three key topics were of particular interest, i.e. firstly, the format of the report on non-financial matters, secondly, the nature of the shareholder vote (separate or implied; “binding” or “consultative”), and, lastly, the comfort package provided by third parties (in particular auditors) on such report. Against this background, involved companies and advisers were interested to see whether a uniform or at least a prevailing practice would already emerge during the 2024 AGM season. 

2) Format of the report on non-financial matters

Overall, Swiss law does not mandate a specific reporting standard, except regarding climate matters, which are part of the environmental matters that must be included in the report on non-financial matters. In the EU, the CSRD requires a “dedicated section” on sustainability matters in the management report (article 19a (1) CSRD). No such express requirement exists under Swiss law. Therefore, Swiss law currently also allows various options: (1) a separate sustainability (non-financial matter) report, (2) a dedicated section of the annual report, or (3) the information required by article 964b CO to be spread out throughout a company’s annual report. 

It seems clear that option 3 is the least favored and, indeed, it has hardly been used by Swiss listed companies in their reports published in 2024. A slight majority of listed companies seems to have opted for a separate report. A majority of companies provided a GRI Index and a few companies also provided an index on where to find the information legally required to be published under Swiss law. Overall, content and volume of the reports varied considerably, in particular between companies of different sizes, and no clear tendency regarding the format of the report emerged from the 2024 AGM season. 

3) Binding or consultative shareholder vote

Another question related to whether the shareholder vote on non-financial matters should be “binding” or “consultative” only. Generally, a binding vote is understood as a condition for a report to be considered finally approved. By contrast, a consultative vote allows shareholders to express their views to the board of directors in a legally non-binding manner. In some cases the distinction between a “binding” and a “consultative” vote has legal implications: for instance, as long as the entity-level annual accounts of a company have not been approved, the company cannot distribute a dividend or take other corporate actions based on such annual accounts. However, as no corporate actions depend on having the non-financial report approved by the general meeting and given that no submission for a renewed vote is generally needed in case of a rejection by shareholders, the distinction seems purely semantic. Nevertheless, absent a formal designation as “consultative” as is the case with the vote on the compensation report (see article 735(3)(IV) CO), we would caution against explicitly labeling the vote as being “consultative”.

This notwithstanding, a slight majority of the 20 companies included in the Swiss Market Index (SMI) have decided – in what appears to have been a coordinated approach – to specifically designate the vote on non-financial matters as “consultative”. Unsurprisingly, this was not well received by some NGOs, in particular proxy advisor Ethos. Ethos publicly stated that it had obtained legal opinions concluding that the shareholder vote should be “binding” based on the purpose of the law and demanded Novartis (usually the first SMI company to hold its AGM) to submit its non-financial report for “binding” approval latest at next year’s AGM. To our knowledge, this controversy and more generally the debate about the nature of the resolution did not have a significant impact on approval rates of shareholders for the reports on non-financial matters. 

Most other listed companies, however, did not attach a particular designation to the vote on non-financial matters and, therefore, implied that such vote would be “binding”. As mentioned above, the distinction is more relevant from a perceptional perspective than from the point of view of legal consequences. In our view, the designation as “consultative” is unnecessary and can be omitted.

4) Shareholder resolution as a separate agenda item 

In contrast to some other topics discussed herein, the question of whether or not the approval of the non-financial report should be a separate agenda item was hardly discussed prior to this year’s AGM season. Most advisors probably assumed that such approval would indeed be a separate agenda item consistent with the (“consultative”) shareholder vote on the annual compensation report. However, the pertinent provision in the CO just states that the report on non-financial matters has to be approved by the body responsible for approving the annual account. Therefore, if a report on non-financial matters was part of the narrative and integrated into the annual accounts (e.g. in the management report), which were approved by shareholders’ meeting, one could argue that the letter of the law has been complied with. While formally we would share this view, we would not consider it to be best practice. Indeed, even though the legislative materials are silent on the actual intent behind the requirement of a shareholder vote, supposedly shareholders should be enabled to voice their satisfaction or dissatisfaction with the company’s ESG policy. This is not possible if the report on non-financial matters is submitted for approval to the shareholder meeting as part of an annual account “package”. 

Consistent with the foregoing view, the overwhelming majority of listed companies did include the approval of the non-financial report as a separate agenda item. All companies included in the SLI index (apart from those who have not published their AGM invitation yet) have proceeded in this way. Only very few companies have included the approval of their non-financial report in the agenda item regarding approval of the annual accounts. For next year’s AGM season, we would expect all listed companies to include a separate item covering non-financial reporting. 

5) Rejection of non-financial report; civil liability and criminal sanctions

To our knowledge, even though in some instances proxy advisors recommended to vote against, no report on non-financial matters was rejected by a shareholders during the 2024 AGM season. Hence, the question as to whether the vote – after a rejection – would have to be repeated on the basis of an amended report remained theoretical. Some commentators argue that the report would have to be submitted again for shareholder approval if it is manifestly incomplete or factually wrong. Apart from the fact that a report that is manifestly incomplete will hardly ever be submitted for shareholder approval (in particular in light of the frequently used limited third-party assurance), it is questionable if another shareholder vote is required (and useful). In our view, this depends, in particular, on whether or not substantive legal requirements have been manifestly breached and whether the board of directors could be exposed to liability. In most cases, therefore, we would not anticipate a repeated vote based on an amended report to be necessary. 

Aside from the criminal provisions, no provisions regarding liability in connection with non-financial reporting were introduced. Accordingly, any claims for civil liability would have to be based on existing remedies, the directors’ liability provisions of articles 754 CO seqq. being the most relevant ones. We are not aware of any claims having been made or threatened against Swiss listed companies or their boards on the basis of this year’s non-financial reports. 

Article 325ter of the Penal Code (SPC) stipulates criminal liability for anyone who, willfully or negligently, makes false statements in the non-financial report. The same applies if no reporting is made at all. The sanction is a fine of up to CHF 100,000 in case of willful misconduct and up to CHF 50,000 in case of negligence. We are not aware of any criminal proceedings pending or having been initiated based on this year’s non-financial reports of Swiss listed companies.  

6) Review requirements

Under current Swiss law, the non-financial report does not need to be audited or otherwise independently reviewed. However, given the requirements of the CSRD and the potential changes in Swiss legislation, it appears useful to have the non-financial report (or selected parts thereof) verified (limited assurance) by an independent party, namely the auditors. In particular, it will be easier to defend against allegations of negligent breaches of article 325ter SPC if the non-financial report has been independently verified. Further, at least some investors would like to have some kind of an assurance from a third party as a quality check. Ethos, for example, has stated in its 2024 guidelines that it will issue a vote against a report if such report and/or the relevant indicators are not verified by an independent third party. 

Consistent therewith, a slight majority of Swiss listed companies have subjected their reports to some kind of third party review. In most instances, these companies mandated their auditors to provide a limited assurance opinion based on International Standards on Assurance Engagements 3000 (ISAE). This involves a negative statement by the auditor confirming essentially that nothing has come to its attention that certain metrics, KPIs or standards (such as the GRI standard) have not been complied with. Some non-financial reports have also been reviewed by other third parties such as SGS who– absent the constraints of the audit profession –were able to provide certain affirmative statements on compliance with standards such as GRI. 

7) Outlook

While the 2024 AGM season has been marked by various formal and procedural topics as far as reporting on non-financial matters is concerned, in 2025 the focus is likely to shift to climate-related substantive topics. Indeed, in 2025 Swiss listed companies will for the first time be required to report on climate-related matters in accordance with the significantly more stringent formal and substantive requirements set forth in the Federal Ordinance on Reporting on Climate Related Matters. This ordinance entered into force in January 2024 and implements the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and will apply for next year’s reporting season. While the ordinance does not mandate compliance with the TCFD requirements, it states that the Swiss legal requirements (Art. 964b CO) are complied with if these recommendations are followed. Companies subject to reporting requirements, however, may still demonstrate compliance in other ways or by other standards and are still at liberty to explain – which will presumably and hopefully only apply in rare cases – in a reasoned manner why they do not have a policy on climate matters.

In addition, Swiss listed companies will follow closely the consultation process regarding potentially broader corporate sustainability reporting obligations which was opened on 26 June 2024. The proposed amendment, if adopted, would further align Swiss sustainability reporting with the CSRD. It would, inter alia, broaden the scope of the companies subject to sustainability reporting obligations and introduce a mandatory assurance review for the reports.

Thomas Reutter (thomas.reutter@advestra.ch)
Philippe Weber (philippe.weber@nkf.ch)