The Nickel Report

On November 29, Voters in Switzerland narrowly rejected the “Responsible Business Initiative” (RBI), which would have extended liability to multinational corporations and their subsidiaries and suppliers for noncompliance with international environmental and human rights standards, not just in Switzerland but also when doing business abroad. The majority of Swiss voted in favor of the RBI, but the referendum failed due to unique requirements associated with Switzerland’s direct democracy.

The RBI would have been a high water mark related to corporate social responsibility (CSR) and environmental, social and corporate governance (ESG) and the implications for multinational corporations operating across the globe. Even in defeat, there are lessons to be learned from the RBI in terms of what the future looks like for multinational corporations and taking proactive measures now to minimize future CSR- and ESG-related risks.

Corporations in Switzerland, like multinational corporations across the globe, frequently adopt international environmental and human rights standards as part of their internal policies associated with their business operations. An example is the United Nation’s Guiding Principles on Business and Human Rights, which creates state and corporate responsibilities to protect human rights. However, criticism has focused, in part, on the alleged lack of accountability and enforcement in response to operations inconsistent with these environmental and human rights standards.

Enter the RBI, which went a step further, proposing statutory obligations for Swiss-based corporations and associated subsidiaries and suppliers. The initiative would have forced corporations to examine whether they could comply with internationally recognized human rights and environmental standards when carrying out their business operations, including abroad. Further, companies would have been obliged to carry out appropriate due diligence to identify real and potential impacts, take measures to prevent violations, cease existing violations and account for actions taken. Notably, corporations would have been liable for damage caused by any companies that they control when those entities are operating abroad. The RBI created a new burden of proof where the corporation would be liable for human rights and environmental misconduct unless it could prove that all due care had been taken.

Other countries have similar laws focused on corporate diligence to prevent environmental and human rights harms (e.g., France), including associated with supply chains, but the RBI would have been the first state-law that placed the burden on the corporation to show it took steps to minimize impacts through due diligence, instead of the burden falling on the victims of harm proving a corporation failed its obligations. If the initiative had passed, corporations would have had to check that activities throughout their supply chains complied with internationally recognized human rights and environmental standards. While the RBI was rejected, these types of state-enacted legal frameworks focused on environmental and human rights concerns will likely continue to be raised as part of the trend of furthering CSR and ESG frameworks for multinational corporations.

For the proponents of the RBI, all was not lost, as new reporting and due diligence obligations will be put in place instead per the terms of the referendum. Failure to comply could lead to fines being imposed, but unlike under the RBI, corporations would not face Swiss courts based on claims brought by victims of alleged environmental or human rights harms, including abroad.

These new environmental and human rights reporting requirements in Switzerland align with likely developments in the United States under the incoming Biden Administration. The U.S. Securities and Exchange Commission, for example, is considered likely to take steps under the new Administration to establish regulations specific to ESG disclosure requirements for publicly traded companies. During the campaign, President-Elect Biden stated that he would require, for example, public companies to disclose climate risks and the greenhouse gas emissions in their operations and supply chains.

The incoming Biden Administration’s focus on climate change and environmental justice, combined with a likely emphasis on internationalism, multilateralism, and international institutions, and the trends in countries like Switzerland and other EU-countries, means the high water mark for boundary-pushing CSR and ESG frameworks for multinational corporations is still in front of us.

The Hunton Andrews Kurth’s Environmental Sustainability and Corporate Social Responsibility team assists clients with corporate-wide and project-specific environmental, health, safety and social strategic planning and risk management.