Beware of the ‘compliance trap’ as new regulations come into force

15 February 2022

The revision to the Code of Obligations and related Ordinance, "Gesetzesbestimmungen für einen besseren Schutz von Mensch und Umwelt"* came into force in Switzerland in January. It asks all large companies to continuously report their environmental, social, labour, human rights and corruption issues from their fiscal year 2023 onwards. For those working with conflict minerals or metals or where child labour is a risk in the supply chain, there are further due diligence and transparency steps to take.

Whilst the legislation is new, the expectation that businesses understand and manage their human rights risks and impacts is not. The Swiss government has long been promoting a responsible business approach through its National Action Plan on Business and Human Rights. It has published guidance for the commodity sector and for Small and Medium Enterprises (SMEs) on implementing Human Rights Due Diligence. Training events are also offered through the Global Compact Network of Switzerland and Lichtenstein, industry associations and local Chambers of Commerce.

Switzerland is not alone. Other countries are also taking the lead from internationally recognised frameworks including the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises and developing legislation. In late 2021, Germany adopted its Supply Chain Due Diligence Act and there are ongoing discussions towards requiring mandatory due diligence in the Netherlands and at EU level.

For over 18 years, our consultants have been supporting companies in Switzerland and across the world, to identify and address human rights impacts that pose risks to people (rightsholders), business and ultimately shareholders and investors. We meet our clients and their suppliers where they are. Some are at the very start of their human rights journey, needing to grow understanding and awareness within the business and map out the path ahead. Others are looking for a health check, confirmation that they are on the right track, before deepening their engagement and impact within the business.

What does this mean in practice?

We believe that a Human Rights Due Diligence (HRDD) approach based on the international frameworks helps to guard against what we call ‘the compliance trap’. This is when companies become so focused on meeting specific legislative requirements or responding to data requests from stakeholders, that they lose sight of the actual goal which is to make a difference to lives and livelihoods and by doing so, to de-risk and strengthen the business.

Our approach is therefore to place the Swiss legislation in its broader context. Working with clients to implement lean and pragmatic processes, and the supporting governance, capabilities and culture (appropriate to their scale and risk) to bring human rights due diligence to life throughout their operations and supply chains. This enables our clients to avoid the ‘compliance trap’, prepares them for legislation in all their key markets, and ensures they are proactively managing any risks for themselves, their investors and the rightsholders they impact.

By embracing transparency and implementing HRDD you can:

• Prepare to meet the requirements of the legislation and its reporting needs.
• Understand any negative impacts that your business has on people and take informed action to alleviate them.
• Proactively manage business risks associated with human rights such as disruption to your supply chain or loss of consumer confidence.

We saw the benefits of this approach with a large European car manufacturer who was keen to better understand the risks behind their metals sourcing.  The EU regulation (now mirrored by the Swiss) defined conflict minerals and metals as “tin, tantalum, tungsten and gold and their by-products, originating from conflict-affected and high-risk areas”. To future-proof their business, our client wanted to go further, so we identified the fifty metals and minerals with the highest human rights risks in their supply chain.  By doing so they were able to fully capture, prioritise and respond to the wider risks in their business and anticipate any changes ahead. They are now well placed to respond to the more far-reaching German Supply Chain Act that asks companies to conduct continuous due diligence across their own operations and that of their direct suppliers across their whole supply chain.

Several of our clients operate supply chains in agriculture or other raw materials where issues such as child labour continue today. Our approach is to support clients in tackling the root causes that result in child labour. This isn’t something that can be achieved through an audit or a quick supplier review. It involves getting on the ground, speaking to local people, and uncovering the deeply entrenched systemic issues linked to local policies, business practices, welfare and governance. By understanding the root causes, our clients can implement partnership programmes that seek to address those causes in full.  We recently created this helpful guidance for business leaders on tackling child labour, in partnership with UNICEF and the World Business Council for Sustainable Development.

What's my next step? 

If you are just starting the process or are deep into planning how to respond to the new Swiss legislation, then please get in touch with our team in Geneva at . We have the experience and expertise to guide you, supported by an expert legal panel to help you navigate the next steps.

For us it’s clear, the best way to simultaneously reduce social risks and build a business ready for the future, is to follow an HRDD process that enables you to know, understand and take action that delivers for all stakeholders.

With unrivalled international experience, we are excited to support a new wave of companies as they start to address the Swiss legal requirements and integrate human rights management into their business. Find out more here.

* Revision of the Code of Obligations and implementation of the Ordinance on Due Diligence and Transparency in relation to Minerals and Metals from Conflict-Affected Areas and Child Labour (DDtRO)