Responsible Business debate could cause ripple effects globally

In the world's poorest countries, around one in four children are engaged in work that is potentially harmful to their health, according to UNICEF. Keystone

A decision by the Swiss parliament this week on an initiative to hold companies accountable for their impacts on human rights and the environment could send a message on how far governments are willing to go.

Set for Thursday in the House of Representatives, the debate will centre on a counter proposal to the Responsible Business InitiativeExternal link. If adopted, it will put Switzerland at the forefront of a rapidly growing trend to embed corporate responsibility into national laws.

The initiative has already been the subject of heated debate. Originally rejected by the Federal Council (executive body), a counter proposalExternal link has kept alive core tenets of the popular initiative, which was put forward in 2016 by the Swiss Coalition for Corporate JusticeExternal link, a group of more than 80 civil society organizations. If approved by the House, it will move to the Senate for a vote. If both chambers agree to adopt the counter proposal, it’s likely the initiative will be withdrawn.

House approval

June 14: The House of Representatives approved the counter proposal with 121 votes for and 73 against, with two abstentions.

The aim of both the initiative and proposal is to create the legal basis for companies headquartered in Switzerland to respect human rights and the environment throughout the world. It calls for mandatory human rights due diligence and for companies to be held liable for damage caused by companies under their control.

But the counter proposalExternal link limits the scope to companies that exceed at least two of the following: 500 employees, annual sales of CHF80 million ($80 million), total assets of CHF40 million. Smaller companies whose activities pose particular risks to human rights could also be included. It is estimated that 10,000-15,000 companiesExternal link in Switzerland would be covered. The proposal also specifies that companies can only be held liable for activities of legal subsidiaries and injuries to life and limb or property. 

Although this is narrower than the original initiative, Tom Cassee of the Coalition for Corporate Justice said in an interview that “it is a compromise but one we can accept. The proposal will make legislative changes directly, which is faster than pushing for changes to the Consitution and then debating legislation for years”.

‘New normal’

The Initiative is part of a wider trend to embed corporate respect for human rights into hard law since the launch of the UN Guiding Principles on Business and Human RightsExternal link in 2011. In the business newspaper, HandelszeitungExternal link, John RuggieExternal link, lead author of the Principles, argued that mandatory human rights due diligence is the “new normal” and that “Switzerland would not be alone by undertaking progressive change in this space; indeed, it risks falling behind”.

More than 30 laws and initiatives on business and human rights have been introduced since 2011. This includes, for example, the EU Directive 2014/95External link on non-financial reporting and the UK Modern Slavery Act of 2015External link, Section 1502 of the Dodd-Frank ActExternal link on conflict minerals, and the recently adopted Dutch Child Labor Due DiligenceExternal link law, that all call for mandatory human rights due diligence.

An emerging area of national law is corporate liability and access to justice for victims, some of the most controversial pieces of the Swiss Initiative. The French Duty of Vigilance Law adopted in February 2017 was the first to impose penalities if companies do not publish vigilance plans or the failure to conduct due diligence results in harm that could be prevented.

Elizabeth Umlas, who teaches business and human rights at the University of Fribourg, argues these laws are just the beginning. “Without a world court holding companies liable for extraterritorial violations, it is currently up to local governments to respond. But the reality is that there is often no chance for victims to attain justice in places where there is a lack of an independent judiciary or limited press freedom, for example.”

According to the Federal Statistical Office, more than 578,000 enterprises in Switzerland employ more than four million people (about half the Swiss population.)  About 99% of all businesses in Switzerland are small and medium-sized enterprises (SMEs) with fewer than 250 employees. Although large companies represent a small share of the total, they account for one third of employees in private enterprises.

The shift to hard law also stems from skepticism about voluntary initiatives. “If you look at the news, there remain persistent human rights violations by companies. It isn’t working for companies to regulate themselves. What is needed is something that has teeth,” says Umlas.

Game-changer or just a formality?

Opinions vary on how much of a game-changer the Initiative is for companies in Switzerland. Anya George, an attorney at Schellenberg Wittmer, explained in an interview that “whether or not the initiative passes, Swiss companies are going to be confronted by these issues more often. Human rights due diligence and reporting requirements are becoming common practice for large companies that want to manage risk”. 

The corporate liability requirement is a more significant change.  Cassee says that “without liability there is no reason for companies to prevent abuse”. 

However, Erich Herzog of the Swiss Business Federation, economiesuisse, which is against the initiative, argues that this would “unfairly punish Swiss companies because it puts companies at risk of being sued from abroad, even by competitors, for actions beyond their control”. 

Perhaps even more important is the precedent the initiative sets for other countries and the statement it makes about Switzerland’s position on protecting human rights, especially given the high concentration of multinational companies in the country.

There are 11,524 subsidiaries of foreign multinational companies that employ about one in ten people in Switzerland, according to data published by the Federal Statistical OfficeExternal link in 2017. 

Switzerland also boasts the highest concentration of Fortune 500External link companies per capita in the world, with nearly two for every million people.