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Impact of the European CSRD directive and its delegated act on the Swiss entrepreneurial landscape

According to an analysis by PwC Switzerland, the enactment of the CSRD (Corporate Sustainability Reporting Directive) means that many Swiss companies with significant operations in neighboring countries will have to comply with the new European reporting standards. “These tighter regulations will likely affect the economic playing field and impact even those Swiss companies without subsidiaries or branches abroad.”

More specifically, by financial year 2028, under the CSRD directive, third-country companies achieving a net turnover exceeding 150 million euros in the EU and having at least one subsidiary or branch within the EU will be required to provide a report focused on their ESG impact, i.e., related to environmental, social, and governance aspects. Swiss SMEs will be affected, both directly and indirectly. By 2028, they will be directly affected based on the thresholds related to net turnover in the EU. Moreover, in a much shorter time frame, Swiss SMEs will be indirectly impacted as suppliers to companies subject to the directive, since they will need to provide their business partners with sustainability-related information.

PwC Switzerland recalls that at the end of 2022, the Swiss Federal Council expressed its intention to move towards a sustainability regulation for companies harmonized at the international level. Based on an administrative report (mentioned below), which decodes the consequences of a regulatory divergence with the EU on the Swiss economy, the Federal Council deemed it necessary to go further. Increased requirements for sustainability reporting within the EU will impact the Swiss economy, heavily oriented towards export. The Federal Council thus sees the urgency of adjusting the Swiss regulation applicable from the fiscal year 2023 and plans to launch a consultation project no later than July 2024.

Following the adoption of the first delegated act in July 2023, presenting the first set of European standards for sustainability reporting (ESRS), and considering the publication deadline set for 2025 for large European companies, SMEs and other companies initially not covered by these standards are advised to consider the disclosure of sustainability-related information. Indeed, large companies will increasingly request information of this nature (such as Scope 3 emissions or activities in line with the EU taxonomy) from their suppliers. Limiting oneself to compliance with more permissive Swiss regulations could erode any competitive advantage. Conversely, the proactive disclosure of non-financial data in line with international best practices or European sustainability reporting standards could be seen as an opportunity for distinction. It would subsequently strengthen internal processes and company resilience.

Overview of European regulations and standards.

Detail of the analysis of the EU's proposed corporate sustainability due diligence directive and on the reporting of information on sustainability by companies, and assessment of the need to adapt Swiss law

According to a report from the Federal Office of Justice, prepared in collaboration with the competent services of other departments and dated 25 November 2022, Swiss SMEs will not be directly impacted by the Commission's proposed due diligence directive. However, they could be indirectly affected insofar as they intervene in the value chain (especially as subcontractors) and their business partners might transfer their obligations to them. They would then have to adopt appropriate measures to comply, for example, with the code of conduct or the prevention plan of their business partners. Consequently, the directive envisages practical support for SMEs to help them anticipate these new demands.

SMEs might thus potentially bear the costs of external analyses concerning actions to be undertaken on sustainability matters by the SMEs that are their business partners. In accordance with Article 14 of the proposed directive, Member states and the Commission will have to set up support measures for businesses and actors indirectly affected by requirements covering all global value chains. Based on clarifications provided by the EU, it can be expected that the new directive will result in a significant administrative burden for subcontractors of companies subject to this directive. EU support measures will mainly be intended for SMEs of member states. This could lead to competitive disadvantages for Swiss SMEs in this situation.

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