Relevance of the topic to SZKB and objectives

Complying with regulations and fostering healthy growth that aligns with SZKB’s risk profile are essential for maintaining SZKB’s impeccable reputation. Responsible business conduct in and towards the financial sector has an impact on various sustainability issues, such as the environment, society and the economy.

• Inside-out – the impact of SZKB on the financial sector: SZKB influences environmental and social standards in the financial sector through its decisions. Supporting companies that meet sustainable criteria helps bolster trust in the Bank and achieve long-term stability. At the same time, there is a risk that the provision of financing to companies that do not comply with environmental regulations or social standards may result in reputational damage, regulatory consequences or financial losses.
• Outside-in – the impact of external factors on SZKB: External factors such as regulatory changes, climatic risks, societal expectations and environmental changes affect SZKB’s business activities. Companies that are slow to adapt to new requirements can become more difficult to finance, increasing the risk of default and associated financial burdens for the Bank. Reputational risks may also arise if SZKB is not perceived as being sufficiently sustainable. In addition, there may be a threat of regulatory consequences if regulatory requirements are not fully complied with. Effective risk management is therefore crucial to address these challenges at an early stage and to prepare the Bank and its clients for future changes.

Overall, responsible action helps to meet regulatory requirements, protect the Bank’s reputation and gain the trust of clients and society. This fosters not only sustainable growth but also financial sector stability for the Bank. For these reasons, "regulatory compliance", "reputation" and "healthy growth" are key topics for SZKB in terms of responsible business conduct vis-à-vis the financial sector.

SZKB has not defined any specific targets in terms of responsible business conduct vis-à-vis the financial sector.

Management approach

Compliance management system
At SZKB, compliance primarily means compliance with regulatory requirements. At SZKB, corporate governance requirements are implemented through appropriate regulations and targeted directives. These are updated as part of a regular review process. In addition, compliance with corporate governance regulations and directives is ensured by means of risk management processes and the internal control system (ICS) and is verified by internal (Board of Inspectors) and external bodies (external auditor, FINMA).

The "Code of Conduct of Schwyzer Kantonalbank" outlines the fundamental principles necessary for successful and responsible business conduct at SZKB. This Code is issued by the Bank Council of SZKB and is applicable to all employees and governing bodies of the Bank. The Code of Conduct is accessible to all employees on the intranet and is published on the website www.szkb.ch. It aims to foster an effective and consistent corporate and compliance culture within SZKB. It sets out the most important behavioural rules that must be complied with by all employees and includes statements on compliance with regulations and responsible behaviour, on integrity, fairness and professionalism in dealing with internal and external partners (including the avoidance of conflicts of interest), and on sustainability, risk behaviour and whistleblowing.

Ethics and the anchoring of ethical principles are ensured by the SZKB Code of Conduct as well as by the obligation for all employees to comply with regulations and internal requirements. SZKB establishes the responsibilities of the Compliance function and other business areas in the internal directive on «Compliance (adherence to standards)» and stipulates in particular reporting obligations in relation to incidents.

Whistleblowing
SZKB has established a reporting office to which employees and third parties, such as clients and suppliers, can report misconduct at any time by e-mail or in writing. Related information is made available to the public at www.szkb.ch. Information can also be provided anonymously and will be treated confidentially unless there is a legal obligation to disclose it. Provided that reports are submitted in good faith, SZKB will protect employees who report wrongdoing from any related sanctions. The handling of information received is governed by the "Whistleblowing Policy" issued by the Bank Council of SZKB, which is available to all employees on the intranet. In addition, employees or third parties can also reach SZKB via public channels or contact other bodies such as the Banking Ombudsman or the Swiss Financial Market Supervisory Authority FINMA ¹.

¹ _{The Swiss Banking Ombudsman operates as a source of information and a mediation body, without any judicial authority, for clients of member institutions of the Swiss Bankers Association (banking and financial service providers) as well as other institutions affiliated with the Swiss Bankers Association for this purpose.}

Compliance with market conduct rules
In the internal directive on "Market Conduct Rules", SZKB specifies the statutory provisions on impermissible market conduct and the relevant requirements of the supervisory authority. In order to avoid market abuse, guarantee the transparency and proper functioning of the securities markets and ensure equal treatment of investors, trading in securities should only take place on the basis of generally accessible or published information. The exploitation of insider information and market manipulation is prohibited.

Managing conflicts of interest
SZKB complies with the requirements of the Swiss Criminal Code on corruption (bribery, granting of benefits, acceptance of benefits) and clearly rejects bribery and corruption. It has also adopted internal regulations on conflicts of interest and the management of conflicts of interest, which have been approved by the Bank Council. This document describes in detail the forms that conflicts of interest can take, as well as what amounts to bribery and corruption, and establishes a monitoring mechanism to be operated by the Chief Compliance Officer.

Combatting money laundering
There is an internal directive at SZKB on "Combatting Money Laundering (AMLA, AMLO-FINMA) and Specification of Due Diligence Obligations (CDB)". It defines the processes for preventing money laundering, responsibilities and the dedicated anti-money laundering unit. In all areas of business, SZKB does not accept employees engaging in illegal conduct or violating internal policies. In addition, SZKB uses databases (e.g. Dow Jones) to combat corruption and money laundering by identifying high-risk individuals and organisations. Both transactions and new clients are reviewed. If there is any suspicion of illegal activities such as money laundering, terrorism or corruption, this will be reported to the competent authorities. Audits and controls by supervisors, second-line units (in particular by Risk Management and the Compliance function) and the risk-based approach of the internal and external auditors ensure that the requirements are met.

Prevention of tax evasion
SZKB does not provide any tax advisory services in connection with investment advice, asset management, M&A or offshore domiciling. As a member of the Swiss Bankers Association, SZKB fulfils the obligations arising from the Agreement on the Swiss banks’ code of conduct with regard to the exercise of due diligence. Detailed provisions are stipulated in binding directives. Clients are evaluated with regard to the existence of qualified tax offences, and the tax compliance information they provide is checked. SZKB holds the FATCA status "Registered Deemed Compliant FFI – Local FFI" and implements the relevant restrictive FATCA rules with the support of an independent specialised consulting firm in some respects. In accordance with the applicable statutory provisions, SZKB strictly refuses to provide any active support for capital flight, tax evasion or similar actions. This ban has been firmly anchored in its principles for many years.

As an independent institution operating under cantonal public law, SZKB is not subject to direct taxes on profits and capital at the federal, cantonal or municipal levels. The interest on the endowment capital provided by the Canton of Schwyz and the settlement of the state guarantee are based on the provisions of the publicly available "Law on the Schwyzer Kantonalbank".

Due diligence in the supply chain
SZKB has a "Third-Party Management" directive that governs procurement, contract and partner management. On this basis, SZKB has implemented risk-appropriate measures to ensure compliance with its duties of due diligence and transparency with regard to minerals and metals from conflict regions and child labour:

• Due diligence and transparency with regard to conflict minerals: Confirmation from the counterparties for gold (Good Delivery Rules of the London Bullion Market Association (LBMA) is obtained and documented annually.
• Due diligence and transparency with regard to child labour: An ESG risk assessment, including the risk of child labour, is carried out annually with suppliers, covering the entire supply chain identifiable through financial accounting. Suppliers considered to be high-risk must sign the SZKB sustainability agreement or an equivalent confirmation. In this document, the contracting parties confirm that their products and services comply with applicable regulations, laws and standards, such as those of the International Labour Organization (ILO) or the applicable standards in the countries in which they operate. All items distributed, such as cards, giveaways, and the like, must be manufactured in a country classified by UNICEF in its Children’s Rights in the Workplace Index ¹ as "Basic". Otherwise, the supplier must sign the SZKB sustainability agreement or submit an equivalent confirmation.

With regard to procurement activities, SZKB adheres to the following principles, among others: product-specific requirements, transparency and partnership-based cooperation, social compatibility – including respect for human rights – environmental compatibility and cost-effectiveness.

¹ _{Abrufbar unter www.childrensrightsatlas.org (nur auf Englisch verfügbar).}

Key measures

• Establishing processes to comply with due diligence requirements in the supply chain
• Ensuring ethical business conduct
• Fostering sustainable development
• Minimising reputational risks

Establishing processes to comply with due diligence requirements in the supply chain SZKB has implemented the defined due diligence processes within the supply chain. Based on the results of these as well as the ESG risk analysis carried out (covering the entire supply chain identifiable through financial accounting), the areas of operations and management (with a focus on office materials, machinery and equipment), facility management and infrastructure (maintenance, disposal, heating oil consumption, etc.), IT and technical services (e.g. IT hardware and logistics, such as the transportation of valuables), as well as marketing and client loyalty (e.g. advertising and client gifts), were assessed as having high risks within the supply chain, and appropriate action was taken.

Employees entrusted with the procurement of advertising materials and goods, in particular in high-risk areas, were trained in 2024 with regard to SZKB procurement principles.

Ensuring ethical business conduct
SZKB has an independent Board of Inspectors, which reports to the Bank Council and performs the audit and monitoring tasks assigned to it in an independent manner. The Board of Inspectors is an independent entity and reports to the Audit Committee with regard to technical aspects but is answerable to the Chairperson of the Bank Council. Ethical incidents are duly escalated and reported to the Audit Committee or directly to the Chairperson of the Bank Council. The Board of Inspectors focuses its work on the binding elements of the International Standards for Professional Practice adopted by the IIA (Institute of Internal Auditors), that is, Global Internal Audit Standards (GIAS) and topical requirements, as well as the qualitative requirements of IIA Switzerland. The aim of the Board of Inspectors is to strengthen, protect and preserve the Bank’s ability to create value by providing the Bank Council and the Executive Board with independent, risk-based and objective auditing certainty, advice, insights and perspective. The Board of Inspectors conducts a comprehensive risk assessment of the Bank at least once a year, taking due account of external developments and internal factors. Based on this analysis, the Board of Inspectors carries out audit planning using a risk-based approach. All areas are audited at least once every five years. Examinations relating to fraud and business ethics are integral components of the audits. In addition, an annual audit is carried out by the external auditor based on a questionnaire on fraud and business ethics. By applying the three-line model of the IIA, SZKB ensures that responsible and ethical business conduct is engaged in at SZKB by implementing various protection and control mechanisms within processes or through the ICS.

Regular checks and audits by operational or controlling units, as well as the independent unit of the Board of Inspectors, have put in place numerous safeguards designed to protect the Bank from unethical business conduct. Ethical business conduct can be reflected by the Bank’s healthy growth and the reduction of reputational risks, as responsible and ethical action is a key element of the decision-making process. 

Fostering sustainable development

For SZKB, healthy growth means balancing economic success with environmental and social responsibility. The aim is to achieve a balanced combination of long-term stability, innovation and sustainable value creation. Healthy growth results from various measures adopted within the framework of the corporate and sustainability strategy. There are no stand-alone measures or objectives in this regard. As part of a review of the sustainability strategy to be carried out in 2025, SZKB will reassess and, if necessary, adapt its sustainability targets and measures to meet legal requirements and its own standards in terms of sustainable development. It will then be considered whether new measures or objectives in the area of "healthy growth" are necessary.

Minimising reputational risks

SZKB’s reputation is a key component of its sustainability strategy and is largely responsible for its long-term success. The trust of clients, employees, business partners and the general public is earned through consistent transparency, reliability and responsible action. By launching new processes, such as the due diligence process in procurement, SZKB sets new internal standards and minimises its reputational risks.

Since 2024, SZKB has been integrating ESG risk drivers into its comprehensive risk management system. As a result of this expansion, processes have been implemented that systematically assess the impact of a risk on its reputation and, if necessary, minimise the risk through appropriate action.

For SZKB, its reputation is not only the result of its performance but also reflects an obligation to foster long-term trust through responsible action and to strengthen its position as a reliable partner.

Assessment of effectiveness

In 2024, SZKB focused in particular on new regulatory requirements in terms of responsible business conduct vis-à-vis the financial sector. The following milestones were reached:

• Processes and responsibilities relating to ESG within procurement were laid down in a directive "Third-Party Management" and the corresponding process instructions were set out in a work instruction.
• The ESG risk framework (including greenwashing) was implemented and applied for the first time as part of the annual risk management process.

SZKB considers the measures taken to be appropriate and effective.

Further development and next steps

To ensure that it continues to meet all regulatory requirements in future, the Bank uses a regulatory radar scheme to proactively monitor current developments. Requirements in regard to sustainability (including those relating to greenwashing) are also taken into account. At periodic intervals, the regulatory radar is presented and discussed at the Executive Board level, and any necessary changes within the Bank are made.

The Board of Inspectors has already previously conducted ESG reviews in the past. With ESG becoming increasingly integrated into business processes and with regulatory requirements increasing, the issue of ESG will continue to be an integral part of the auditing activities of the Board of Inspectors in the coming years.

As part of a strategy review, in 2025 SZKB will review whether targets should be set in regard to responsible business conduct vis-à-vis the financial sector.