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What is the Swiss Supply Chain Act (VSoTr)?

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Kara Anderson

updated Oct 22, 2024

UK Copywriter at Greenly

Many companies may not realize that their everyday operations, from sourcing minerals to manufacturing goods, can contribute to both human rights violations and environmental harm. Conflict minerals, child labor, and environmental degradation are often deeply embedded in global supply chains, making it challenging for businesses to track their impact. The Swiss Supply Chain Act (VSoTr), which came into force on January 1, 2022, aims to address these critical issues.

The VSoTr requires Swiss companies to adopt robust due diligence measures across their supply chains, particularly in the sourcing of conflict minerals (like tin, tantalum, tungsten, and gold) and ensuring that child labor is not involved. The Act also pushes companies to be transparent about how they source raw materials, encouraging businesses to not only protect people but also safeguard the environment.

👉 In this article, we’ll explore how the VSoTr sets new standards for ethical and environmentally responsible business practices, outlining the key obligations it places on companies and the broader implications for Swiss industries.

What is the VSoTr?

The Swiss Supply Chain Act (VSoTr), also known as the Ordinance on Due Diligence and Transparency (ODDT), came into force on January 1, 2022. The Act is rooted in the “For Responsible Business – to Protect People and the Environment” initiative, also referred to as the Corporate Responsibility Initiative, which sought to ensure that Swiss companies adhere to global standards not only for human rights but also for environmental protection. While the initial Corporate Responsibility Initiative was rejected in a 2020 referendum, the indirect counter-proposal - what we now know as the VSoT - automatically became law in 2022.

The VSoTr is designed to hold Swiss companies accountable for human rights abuses and, to a certain extent, environmental harm within their supply chains. Its primary focus is on two key areas:

Conflict minerals: Companies must ensure that they are not sourcing materials such as tin, tantalum, tungsten, or gold from conflict-affected or high-risk areas.
Child labor: The regulation mandates that businesses assess their supply chains for risks related to child labor, ensuring that no products or services they offer are linked to exploitative practices.

Although the VSoTr’s focus is predominantly on human rights, it also indirectly addresses environmental concerns. By enforcing responsible sourcing and traceability systems, the Act encourages companies to avoid contributing to environmental degradation associated with conflict mining. For example, responsible mining practices often reduce harmful impacts like deforestation, water pollution, and land degradation. However, it’s important to note that the VSoTr does not impose direct environmental regulations or comprehensive environmental impact assessments. The environmental benefits come as a secondary outcome of the broader due diligence efforts required for conflict minerals.

What is the Scope of the VSoTr?

The Swiss Supply Chain Act (VSoTr) applies to companies headquartered in Switzerland or with their principal place of business in Switzerland, focusing on those involved in the procurement, import, or processing of minerals and metals from conflict-affected or high-risk areas. The Act primarily targets materials containing tin, tantalum, tungsten, or gold - commonly referred to as 3TG - as well as companies at risk of sourcing goods produced through child labor.

Who is affected?

The VSoTr impacts a broad range of industries, from mining to electronics, requiring companies in these sectors to evaluate their supply chains for risks associated with conflict minerals or child labor. For example, any company that uses 3TG in its products - whether through direct import or via suppliers - must ensure that these materials are responsibly sourced.

However, small and medium-sized enterprises (SMEs) are exempt from the Act's due diligence and reporting obligations, provided they meet specific criteria. Companies with fewer than 250 employees or that fall below certain financial thresholds are generally not required to comply with the VSoTr unless there is a significant risk of child labor in their supply chain.

Exemptions

The Act also grants exemptions to companies that already comply with internationally recognized standards. For example, companies that adhere to the OECD Due Diligence Guidance for Responsible Supply Chains or the EU Conflict Minerals Regulation may be exempt from additional reporting, as these frameworks already align with the goals of the VSoTr.

Companies are also exempt if the quantity of imported minerals or metals remains below the set thresholds established by the ordinance, reducing the burden for businesses with minimal involvement in high-risk sourcing.

Key Requirements Under the VSoTr

The Swiss Supply Chain Act (VSoTr) imposes due diligence obligations on companies operating in high-risk supply chains. These obligations are designed to ensure that Swiss businesses uphold international human rights standards and take appropriate steps to manage risks across their supply chains.

Due diligence obligations

The VSoTr requires companies to establish due diligence frameworks that help identify and mitigate risks related to human rights abuses and environmental harm. Key elements of the due diligence process include:

Risk identification and assessment: Companies must actively investigate their supply chains to determine if conflict minerals or child labor are involved. This requires tracing the source of materials and identifying suppliers from conflict-affected or high-risk areas.
Supply chain policies: Businesses are required to implement and communicate clear policies on responsible sourcing, ensuring that suppliers comply with ethical standards. These policies must be integrated into contracts with suppliers to reinforce the company’s commitment to due diligence.
Supply chain traceability: The VSoTr mandates that companies establish systems to trace the origin of minerals and materials within their supply chains. This is particularly important for 3TG minerals, where the risk of contributing to conflict is high. Companies must document key details such as the country of origin, supplier names, and in some cases even the smelters or refineries processing these materials.
Risk management and mitigation: When risks are identified, companies must take appropriate measures to mitigate them. This could involve supplier audits, on-site inspections, or collaborating with certification schemes that verify responsible sourcing.

Reporting obligations

In addition to due diligence, the VSoTr requires businesses to provide annual reports outlining how they have fulfilled their obligations. These reports must include detailed information about the steps taken to manage risks, trace materials, and ensure compliance with supply chain policies.

The reporting obligation is central to the transparency required by the Act. It not only demonstrates a company’s commitment to ethical practices but also holds them accountable by making their actions public. The reports are available to the public and relevant authorities, reinforcing the company’s accountability.

Penalties for non-compliance

Failure to comply with the VSoTr’s due diligence and reporting requirements can lead to penalties, including reputational damage and potential legal action. Although the Act doesn’t impose strict financial penalties, the reputational risks of non-compliance, especially for companies with global supply chains, can be significant.

Risk Management Strategies Under the VSoTr

The Swiss Supply Chain Act (VSoTr) places a strong emphasis on risk management, requiring companies to take proactive steps to prevent human rights violations and environmental harm in their supply chains. Effective risk management strategies are central to identifying potential issues early, ensuring compliance, and maintaining ethical operations.

Grievance mechanisms

One of the key risk management tools mandated by the VSoTr is the creation of grievance mechanisms. These systems allow employees, suppliers, and external stakeholders to report any concerns linked to child labor, conflict minerals, or other risks within the supply chain.

By creating accessible reporting channels, companies can address potential violations before they escalate into more significant problems. These mechanisms also help integrate transparency and accountability throughout the supply chain.

On-site inspections and audits

To manage risks businesses are also encouraged to conduct on-site inspections and supplier audits. These audits help verify that suppliers adhere to ethical standards and comply with the company's responsible sourcing policies. Regular audits can uncover issues such as the use of child labor or unsafe working conditions, allowing companies to take appropriate corrective actions. This approach is especially important when working with suppliers in high-risk or conflict-affected areas.

Supplier certifications and recognized standards

Another crucial element of risk management is working with suppliers that are certified under internationally recognized standards. The VSoTr encourages companies to use certification schemes, such as those provided by the OECD Due Diligence Guidance or EU Conflict Minerals Regulation, to verify the ethical sourcing of materials. These standards help businesses mitigate risks by ensuring that their suppliers follow due diligence practices and responsible sourcing protocols.

Collaborating with third-party experts

In some cases, companies may not have the internal capability to manage complex supply chain risks. Collaborating with third-party experts can provide companies with specialized support in managing and assessing risks.

“ 👉 By implementing the strategies above, companies can minimize the risks associated with human rights violations and environmental damage in their supply chains. An effective risk management system not only helps ensure compliance with the VSoTr but also strengthens a company's reputation for ethical business practices. ”

Challenges and Opportunities for Businesses

The Swiss Supply Chain Act (VSoTr) introduces both challenges and opportunities for businesses operating in Switzerland, particularly for those managing complex, global supply chains. However, while compliance with the Act may require significant investment in terms of time and resources, it also offers the opportunity to strengthen business practices and enhance reputational value.

Challenges include:

Challenge	Details	Proposed Solution
Complexity of global supply chains	Managing multi-tiered global supply chains makes it difficult to trace the origins of materials such as conflict minerals or ensure labor standards, especially in high-risk areas.	Implement robust traceability systems and enhance internal processes for tracking and managing risk across the supply chain.
Cost of compliance	Complying with the VSoTr requires investment in audits, traceability systems, and third-party assessments, which can be particularly burdensome for smaller companies.	Adopt digital platforms to streamline audits and reporting, and seek external certification to align with international standards, reducing long-term costs.
Reputational risks	Non-compliance with the VSoTr or failure to meet its transparency requirements can lead to significant reputational damage, attracting scrutiny from regulators and the public.	Develop clear supply chain policies and transparent reporting to show stakeholders your commitment to ethical sourcing, which can also enhance brand reputation.

However, the VSoTr is also an opportunity for companies that embrace it, benefits include:

Improved supply chain resilience: By enforcing stricter due diligence practices, the VSoTr encourages companies to build more resilient and transparent supply chains. This not only helps mitigate risks related to conflict minerals and child labor but also strengthens long-term operational stability. Companies that invest in ethical sourcing are better positioned to manage disruptions and avoid potential legal or reputational issues.
Enhanced brand reputation: Companies that comply with the VSoTr can use their high ethical standards to stand out from the competition. Demonstrating a commitment to responsible sourcing and human rights protection can enhance brand value, attract sustainability-conscious customers, and build greater trust among stakeholders.
Innovation and competitive advantage: Compliance with the VSoTr often requires innovation in how companies manage their supply chains. This could involve adopting new technologies for supply chain traceability or integrating third-party platforms to streamline risk management. This ultimately helps companies not only stay ahead of regulatory demands but also position themselves as leaders in corporate responsibility, gaining a competitive edge in the marketplace.
Global alignment with ESG goals: By complying with the VSoTr, companies also align themselves with broader Environmental, Social, and Governance (ESG) goals, which are becoming increasingly important to investors and consumers. As businesses are held to higher ethical and environmental standards, those that meet these requirements can attract more investment and capitalize on growing consumer demand for sustainable products.

How the VSoTr Can Help the Environment

Although the Swiss Supply Chain Act (VSoTr) primarily focuses on human rights - particularly conflict minerals and child labor - it also plays a role in promoting more environmentally sustainable business practices. By enforcing responsible sourcing and requiring companies to trace the origins of materials, the Act indirectly encourages environmentally responsible behaviors.

Reduced environmental degradation: Companies sourcing conflict minerals are encouraged to work with suppliers that stick to sustainable mining practices, which can reduce harmful environmental impacts like deforestation, water contamination, and habitat destruction.
Encouragement of recycling: The VSoTr also promotes the use of recycled materials as an alternative to mining new resources, contributing to a reduction in resource extraction and its associated environmental impact.
Alignment with ESG goals: By incorporating responsible sourcing into their operations, companies can better align with broader ESG objectives, promoting sustainability across the supply chain.

While the VSoTr does not impose direct environmental regulations, its focus on ethical sourcing can contribute to reducing the environmental footprint of businesses, especially those working with high-risk materials.

Practical Steps for Compliance

To meet the requirements of the Swiss Supply Chain Act (VSoTr), companies need to take proactive measures to ensure their supply chains are transparent, ethical, and aligned with the Act’s due diligence standards. Below are some practical steps businesses can take to ensure compliance:

1. Establish a supply chain policy

The first step for companies is to develop a clear supply chain policy that outlines their commitment to ethical sourcing, human rights, and environmental standards. This policy should be communicated to all suppliers and incorporated into supplier contracts.

2. Implement a traceability system

Companies need to establish a robust traceability system to track the origins of materials, particularly for minerals like tin, tantalum, tungsten, and gold. This system should capture key information, including the names and locations of suppliers, the country of origin of the materials, and, when applicable, the smelters or refineries involved.

3. Conduct risk assessments

Businesses must carry out thorough risk assessments to identify potential human rights and environmental risks within their supply chains. This involves evaluating suppliers based on their location, industry, and the materials they provide, particularly in high-risk areas where conflict minerals or child labor might be involved.

4. Engage with suppliers

Maintaining open communication and collaboration with suppliers is important. Companies should work closely with their suppliers to ensure compliance with ethical standards and identify opportunities for improvement. Engaging with suppliers to provide training, support for certifications, and regular assessments can help ensure long-term compliance.

5. Use third-party audits

To verify compliance and ensure that suppliers are meeting the necessary standards, companies can conduct third-party audits. These audits can provide an independent assessment of suppliers’ adherence to ethical sourcing practices, ensuring that due diligence efforts are properly implemented.

6. Report transparently

One of the key obligations under the VSoTr is annual reporting. Companies must provide detailed reports that outline how they are managing risks in their supply chains, including the results of their due diligence efforts, traceability systems, and any actions taken to mitigate risks. These reports must be transparent and publicly available.

How Greenly Can Help Your Company

At Greenly, we understand that businesses are under increasing pressure to ensure that their operations, including their supply chains, are not only ethical but also environmentally sustainable. Greenly specializes in helping companies reduce their carbon emissions and build sustainable supply chains that contribute to a more responsible future.

Carbon and Supply Chain Sustainability Solutions

Greenly provides businesses with the tools and expertise needed to measure, track, and reduce carbon emissions across their entire supply chain. Our platform is designed to streamline emissions management while helping companies meet broader sustainability goals:

Emissions Monitoring: Our platform allows you to track Scope 1, 2, and 3 emissions throughout your supply chain. This means you’ll have visibility over both direct emissions and those generated by suppliers, enabling you to make informed decisions that reduce your overall environmental impact.
Lifecycle Assessment (LCA): We help companies perform lifecycle assessments to understand the carbon footprint of their products from raw material extraction to end-of-life disposal. This insight allows businesses to target the most carbon-intensive stages of their operations and implement strategies to reduce their impact.
Sustainable Supply Chain Strategies: By analyzing emissions across the supply chain, Greenly helps businesses identify ways to engage with suppliers and encourage more sustainable practices. Whether you’re looking to lower emissions through improved resource efficiency or by sourcing from more environmentally friendly partners, we provide the insights needed to build a greener supply chain.

Tailored Sustainability Roadmaps

At Greenly, we recognize that no two companies are the same. That’s why we work closely with you to develop a sustainability strategy that aligns with your unique business model and supply chain structure. Whether you aim to meet emissions reduction targets or improve your overall sustainability credentials, we offer practical, actionable solutions to help you achieve your goals.

👉 At Greenly, we focus on helping businesses reduce their carbon footprint and make their supply chains more sustainable. We provide the tools and expertise you need to make meaningful progress toward a low-carbon future. Get in touch with us today to start your sustainability journey.