Will corporate responsibility
legislation be enacted in Finland?

D&I Quarterly Q3/2019

Posted on

21 Oct

2019

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Dittmar & Indrenius > Insight > Will corporate responsibility
legislation be enacted in Finland?

Corporate responsibility has become a significant factor defining the operations, value and brand of companies.

Even though Finnish companies have no clear direct legal obligations concerning any negative impacts that their subsidiaries and independent suppliers or subcontractors they use may have in relation to human rights or environment, stakeholders’ expectations concerning responsibility have increased. In addition, there is currently pressure for common operational requirements from market operators themselves.

Several countries have enacted or are planning to enact special corporate responsibility legislation with which they can affect the practices related to supranational companies’ value chains while there are conflicting demands of binding regulations and soft law regulations. Such corporate responsibility laws often have extraterritorial dimension because they as national laws regulate the activities of companies operating in their area even outside of national borders. In practice, corporate responsibility legislation based on companies’ due diligence obligation imposes on companies an obligation to request information concerning social, human rights-related, environmental and other equivalent risks and requires public presentation of the risk management mechanisms adopted as a result of such mapping. However, there are significant differences between corporate responsibility laws, for example, in terms of the legal basis, material and personal scope of application (or scope of application concerning legal persons), definition of value chains, obligation to request information, obligation to disclose information, other obligations and the content of sanctions.

In Finland, the Ministry of Economic Affairs and Employment has recently informed that it will procure a judicial analysis of regulation and legislation on corporate social responsibility.  Such analysis will focus on establishing a method for nationally implementing corporate social responsibility legislation based on a due diligence obligation.This is no surprise as the programme of the current Government includes several references to enacting corporate responsibility legislation. Furthermore, such legislation has been actively promoted by both the civil society and companies.

“The judicialisation developments in corporate responsibility may be considered a major win in the prevention of negative impacts that companies have in relation to human rights and environment.”

Corporate responsibility legislation may take effect in Finland so that it originates from the EU either as an EU Regulation that is directly applied or as national legislation that has been harmonised on the basis of an EU Directive. If there is no progress in terms of the regulation of corporate responsibility in the EU in the next few years, it is possible that corporate responsibility legislation will be enacted in Finland independently as a national law. In terms of the coverage of corporate responsibility and the equality of companies, regulation at the EU level would be preferable.

The objective and scope of application of corporate responsibility legislation should be the prevention of human rights violations and environmental damage attributable to the business operations of companies registered in Finland, and possibly also companies operating in Finland – both in Finland and outside of Finnish borders. The scope of application could be limited, in accordance with general practices, to companies exceeding specific financial limit values, having higher turnovers and/or number of employees, as is the case with corporate responsibility legislation in France and the EU’s reporting directive.

In addition, the due diligence obligation should be imposed on the companies falling within the scope of application of the corporate responsibility legislation. A company’s entire value chain or its parts would be included within the scope of the due diligence obligation. Moreover, a standard concerning appropriate due diligence would be defined, and the standard might in practice mean that there are various operational obligations.

Violations of the due diligence obligation, as set out in the corporate responsibility legislation, are often related to various legal considerations that often concern, in particular, our current civil provisions on damages and partly also administrative and procedural sanctions. In addition, the relationship between the duty of care applied to company management under the Limited Liability Companies Act and any future due diligence obligation under corporate responsibility legislation should be clarified, and the same applies to the entire range of sanctions for violations of the duty of care and due diligence obligation. Our corporate responsibility legislation should also include an overriding mandatory rule on the basis of which the laws of Finland would be applied to any claims for damages presented on the basis of the corporate responsibility legislation instead of applying the legislation of the country in which the damage incurred, as stipulated in the Rome II regulation.

The judicialisation developments in corporate responsibility may be considered a major win in the prevention of negative impacts that companies have in relation to human rights and environment. However, it must be ensured that aforesaid regulation does not become an unnecessarily heavy administrative burden for companies and that the objectives set by the regulation and the realities of business life are reconciled.

Source/further information on this topic: Lautjärvi Kari, Yhtiön johto ja yhteiskuntavastuun oikeudellinen ulottuvuus (Company management and the legal dimensions of corporate social responsibility), Defensor Legis No. 4/2019.

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