The initiative has the potential to significantly extend liability for certain Swiss companies in relation to abuses of human and environmental rights.

By Paul A. Davies and Michael D. Green

Since 1891, Swiss citizens have been able to request changes to the Swiss constitution through popular initiatives. Currently, if an initiative is put forward by a group of at least seven citizens, and subsequently wins the support of 100,000 signatories within 18 months, a nationwide referendum is potentially triggered. However, before the referendum takes place, Swiss legislators may propose a compromise position to the initiative. This compromise proposal will become law if the initiative’s sponsors agree to it; otherwise, the original initiative is submitted for a national referendum.

The Responsible Business Initiative (KVI), put forth in 2016, is one such popular initiative. As currently worded, the KVI sets out due diligence requirements for Swiss-based companies with respect to environmental and human rights, both in Switzerland and abroad. Notably, it also proposes that Swiss-based companies be held liable for environmental and human rights harms caused anywhere within their global supply chain.

The KVI vs. Similar Initiatives

As noted by Nicolas Bueno, Senior Lecturer at the University of Zurich, the KVI goes further than other nations’ mandatory disclosure and due diligence laws, particularly by specifying the conditions under which Swiss-based companies may be held liable in civil courts. For instance, while mandatory disclosure laws exist in the EU, the UK, and California (see, for example, the EU Directive 2014/95 on Disclosure of Non-Financial Information; the Modern Slavery Act 2015 in the UK; and the California Transparency in Supply Chains Act 2010), they do not impose liability on the parent or associated companies. Similarly, mandatory due diligence laws, such as s. 1502 of the US Dodd-Frank Act (with regards to conflict minerals) and due diligence requirements under EU Directive 2014/95, do not establish specific grounds for corporate liability.

French legislation adopted in 2017 (loi relative au devoir de vigilance) does link mandatory due diligence with civil corporate liability, as discussed in a previous post. The law requires large French companies to implement and publish a vigilance plan, which must include the adverse human rights and environmental impacts linked to the company’s activities, the activities of entities under the company’s control, and the activities of suppliers and subcontractors. If the company fails to meet these obligations, claimants are empowered to bring the issue before a judge, who may issue a fine of up to €30 million if adequate due diligence would have prevented the harm in question.

By comparison, the KVI states that companies must prove that they took requisite care under the legislation, rather than the prospective claimant needing to prove the controlling company acted negligently. However, Bueno notes, “it remains the [claimant’s] responsibility to prove the harm, the causality, and the control relationship between the business entities.”

Public Reception

Critics of the KVI claim that the proposed legislation imposes onerous liabilities on businesses for abuses beyond their control. Others point out that, under Swiss law, claimants may already bring actions against Swiss-based companies for abuses by a subsidiary, if the subsidiary is controlled by the parent company. On the other hand, supporters of the KVI argue that the initiative follows a global trend toward stricter laws enforcing corporate, social, and environmental responsibility (including in relation to the supply chain). According to the Financial Times, Swiss polls indicate that public support for the KVI as originally worded is high, with 120 Swiss NGOs also supporting the initiative.

From 2 June 2020, members of the Swiss parliament will have less than three weeks to propose a compromise position to the KVI. Discussions so far have been fractious, with commenters predicting that the initiative will revert to a nationwide public vote.

Latham & Watkins will continue to monitor developments in relation to this matter.