Business

Knife-edge Swiss vote could make businesses liable for global rights abuses

Posted November 27, 2020 5:17 a.m. EST

— Swiss voters are about to decide whether a business should be held liable for human rights and environmental abuses, even if the wrongdoing was committed in a foreign country by a subsidiary or a supplier it works closely with.

The question has divided the country ahead of a referendum on Sunday, and it could have far-reaching consequences for multinational firms like Nestlé and mining giant Glencore.

Supporters of the Responsible Business Initiative have hung banners and signs from balconies and fences across the country. Swiss banks and other powerful businesses, meanwhile, have taken out expensive newspaper ads warning of dire consequences for the economy. The Swiss government also opposes the measure and is backing a watered-down alternative.

Even so, polls indicate that the "vote yes" camp could emerge victorious. A poll by Swiss broadcaster SRF in early November found 46% plan to vote in favor, while another 11% are leaning in that direction.

"I think it's going to be very close," said Guillaume Zumofen, a political science researcher at the University of Bern.

Battle lines drawn

Supporters of the initiative say that the referendum — which would amend the Swiss constitution if it passes — is essential given the global footprint of top companies in Switzerland, a hub for consumer goods, finance and commodities trading. They also point to the lack of remedies available to victims of wrongdoing.

The initiative would mandate that Swiss firms assess the human rights and environmental practices not just of their own operations, but also of subsidiaries, suppliers and business partners, ensuring they're in line with international standards. Companies could then be held liable in Swiss courts for violations committed by subsidiaries and suppliers they control unless management proves proper due diligence was carried out.

"We need these clear rules and we need [a] clear accountability mechanism for damage," said Danièle Gosteli Hauser, Amnesty International's head of economic relations and human rights in Switzerland.

She pointed to Glencore's copper and cobalt mines in the Democratic Republic of Congo as an example of a high-risk activity. The prevalence of child labor and other dangerous practices in the country's mines has been well documented. Glencore has said it's a responsible miner and does not tolerate any such practices.

Businesses say the initiative could open the door to a flood of court cases. They fear the proposed rules could be applied very broadly, leaving them exposed to legal action even if the wrongdoing was committed by small suppliers.

"We buy from 200,000 dairy farmers around the world every day. If this is accepted, we would be answerable for 200,000 companies," Nestlé CEO Mark Schneider told Swiss newspaper Handelszeitung earlier this month. "Of course we want to monitor our supply chains and we're already doing this intensively. But you can see from the milk example — and that's not even the most problematic — how unrealistic it would be to ensure 100% compliance with regulations around the world, often in very difficult environments."

The Swiss government agrees, and has instead backed a counterproposal, which would automatically go into effect if the initiative doesn't pass on Sunday. The countermeasure would compel companies to increase reporting on environmental and social issues, with a particular focus on child labor and conflict minerals.

Companies like Nestlé and Glencore also back this approach. Erich Herzog, head of competition and regulatory affairs at business lobby Economiesuisse, said it would allow companies to remain engaged in certain countries and lobby for improved conditions on the ground, instead of having to withdraw entirely. Those pushing the Responsible Business Initiative, however, say it would do little to compel actual change.

A broader trend

However the referendum goes, Swiss companies will face new rules, though a "yes" vote would take longer to implement, according to Mark Veser, head of climate change and sustainability services at EY Switzerland.

"In either case, there will be new requirements," he said. Currently, unlike firms in the European Union, Swiss companies are not required to disclose nonfinancial information, he added.

Schneider dismissed suggestions that Nestlé would leave Switzerland if the initiative passes. But in a newspaper ad, Credit Suisse CEO Thomas Gottstein and other top executives at the bank warned of a possible exodus.

"Accepting this initiative would prompt Swiss companies to move to other countries, leading to the loss of valuable jobs and taxable assets in Switzerland," they said.

Finding a new home with less onerous requirements may not be easy. Across Europe, the direction of travel is clear, according to Rachel Barrett, environmental and climate change partner at global law firm Linklaters.

France has also enacted a broad law that holds companies responsible for abuses throughout their supply chains, though the Swiss government claims that the Responsible Business Initiative would impose even tougher liability on companies.

The European Commission is expected to propose new rules for due diligence on human rights and the environment throughout supply chains in 2021. There's talk they could be the most demanding to date.

"The calls for this are growing louder and louder, and there's a lot of momentum behind it," Barrett said.

— Mark Thompson contributed reporting.

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