Ethos has analysed the sustainability reports of 140 companies listed in Switzerland that were required to submit their report to a shareholder vote. The results are clearly unsatisfactory as they reveal a wide disparity between companies and significant gaps in the published reports. Ethos therefore supports the Federal Council's plan to strengthen the legal requirements in this area.
As every year, the Dormakaba Annual General Meeting (AGM), held this Thursday in Zurich, symbolically marked the end of the annual AGM season. Of the companies included in the SPI index, only Barry Callebaut has yet to hold a shareholder meeting before the end of the year.
For Ethos, which today publishes a study on the AGMs of Switzerland's largest listed companies, this is an opportunity to take stock of a season that was not quite like the others. For the first time, listed companies of a certain size were required not only to publish their sustainability reports, but also to submit them to a shareholder vote.
This new requirement, which is the result of the counter-project on the initiative for responsible multinationals, should give investors a better idea of how companies are managing their environmental, social and governance (ESG) issues. As a result, they will be able to redirect their capital accordingly.
Ethos, which issues voting recommendations each year for its clients (mainly pension funds) on all the AGMs of listed companies in Switzerland, has therefore analysed the level of transparency, as well as the quality, of the information and data published. Unfortunately, the main results of this study are not satisfactory.
Firstly, only 75 of the 143 companies that submitted their sustainability report to a shareholder vote followed a recognised reporting standard (GRI, SASB, etc.). The use of such a standard is essential if investors are to be able to correctly assess and compare a company's non-financial performance.
Secondly, and equally problematic, only 61 companies had their sustainability report verified by an external auditor, 55 of which limited the audit to only some of the published ESG indicators, rather than the entire report.
In terms of the data itself, for example, a minority of SPI companies publish all their greenhouse gas emissions. Only 44% publish the emissions of their supply chain and only 15% publish the emissions associated with the use of their products. An equally important social indicator, the voluntary turnover rate of their employees, is disclosed by only 26.1% of companies. This is an essential indicator, since it gives an idea of the social climate and the popularity of the company among its employees.
Tougher legislation required
The lack of transparency and insufficient quality of ESG data published by companies is problematic. The Federal Council has therefore decided to tighten its requirements in this area in order to bring them into line with the stricter requirements of the European Union. At the beginning of the summer, it submitted its draft revision of the Swiss Code of Obligations (art. 964a-c) for consultation.
The Ethos Foundation, which has been promoting ESG best practice among Swiss listed companies for over 25 years, is taking the publication of this study as an opportunity to take part in this procedure and express its demands. Ethos supports the Federal Council's proposal to make the use of a reporting standard and the verification of the report by an external auditor mandatory. However, Ethos considers it essential that the entire report be audited.
Ethos is also in favour of extending the reporting obligation to all listed companies. As the results of this study show, only two thirds of SPI companies were concerned this year, which is unacceptable for public interest companies. Finally, Ethos would like to see the binding nature of the vote on the sustainability report reinforced. In this respect, Ethos considers that the law should specify the impact of a refusal by the AGM for the company, such as a mention in the report and the fact that the board of directors would then be obliged to consult its main shareholders.
Link to Ethos' position paper
Remuneration and contestation on the rise
The study published by Ethos does not focus solely on sustainability reports. Three additional chapters deal with the main voting results at the AGMs of SPI companies, executive remuneration and the composition of boards of directors.
In particular, the study reveals that the remuneration of SMI executives has risen sharply since 2020. The directors of the 20 largest capitalisations on the Swiss stock exchange received an average of CHF 8 million in 2023, compared with CHF 6.4 million in 2020. This increase is due in particular to the remuneration of Sergio Ermotti, who received CHF 14.5 million for nine months at the head of UBS in 2023.
However, this increase is not to the taste of all shareholders. The remuneration reports of SPI companies were approved with an average of only 85% of votes in favour this year, compared with 86.2% in 2023. This rate even drops to 82.3% for SMI companies, a record.
On the other hand, the sustainability reports were approved with an average support rate of 97.4%. Ethos, on the other hand, approved only 46.2% of them due to a lack of transparency and insufficient quality. This difference can be explained by investors' lack of experience and by the amount of work and analysis time required to properly assess each sustainability report. Ethos now hopes that the tightening of regulations and the standardisation of reporting will enable shareholders to better assess the non-financial performance of companies and to exert stronger and more effective pressure on the worst performers.
