Our key takeaway: The Finnish Government has been delving into what it would take to turn the soft law contained in the UN Guiding Principles on Business and Human Rights and the OECD Guidelines on Multinational Enterprises into hard law. Which companies should be required to conduct environmental and human rights due diligence? How far down their supply chain should they be expected to look for impacts? What kinds of impacts would they be looking for? What role would be provided to stakeholder engagement? How would this law be enforced? And so on and so forth. But hang on, what is this feeling of déjà vu? That’s right – we are debating the same themes as part of the EU Corporate Sustainability Due Diligence Directive at the EU level. Discussions to be continued…
The Finnish Ministry of Economic Affairs and Employment has published its report describing the options for Finnish legislation regulating human rights and environmental due diligence: ‘Memorandum on the due diligence obligation – Review of the national corporate social responsibility act’ (April 2022). The report “investigates the options for the content of due diligence obligation in national legislation that would apply to Finnish companies. The memorandum assesses in more detail the legislative alternatives for meeting the obligation; the effect of the obligation on human rights, the environment and companies; and the conditions for implementing the legislation.” This forms part of Prime Minister Sanna Marin’s Government Programme which discusses the preparation of a law on corporate social responsibility.
Three key highlights:
- Objective of the due diligence obligation: The report discusses that the key objective of this law would be “to decrease the adverse human rights and environmental impacts of Finnish companies’ international business operations. The overall purpose of regulation would thus be to ensure that companies respect human rights and the environment and do not cause or contribute to adverse human rights or environmental impacts through their own operations, their supply chains or their business partners.” In addition to requesting that companies conduct due diligence, another stated objective of the law could be to ensure legal protection for affected stakeholders, as well as to increase the role and influence of relevant stakeholders when it comes to “international business operations.” Although the law would apply to companies that “either are Finnish or operate from Finland and are subject to Finland’s legislation”, it would impact how companies “act in international supply chains, where human rights and environmental risks are most likely to be materialised.”
- Firmly based on international standards: The report reiterates that this new Finnish law should be based on international standards, namely the UN Guiding Principles on Business and Human Rights, the OECD Guidelines for Multinational Enterprises and the OECD Due Diligence Guidance. At the same time, the law “would need to precisely and clearly express the obligations imposed on companies.” The report delves into what this could mean in practice. For instance when it comes to the determination of adverse human rights and environmental impacts, the law “would need to define with greater precision than the UN Principles the types of specific treaties covered by the law.” The report discusses two possible approaches to legislation. Either, this could be a general law, which contains an overview of due diligence and lists “general factors that should be considered in due diligence, such as the risk-based and proportional nature and regular updating of the assessment, and consultation with stakeholders and/or vulnerable groups during different stages of the process.” Or this could be a more specific law, which would provide “a tighter framework for due diligence and the activities coming under it.” This tighter framework would for instance “specify the information that companies should collect to assess risks, detail the risks that they should consider in specific situations, describe the measures that they should take to prevent risks or the indicators used to monitor the effectiveness of the measures.”
- Factors to consider: the report delves into various options for the law. For instance, companies in scope could be determined by reference to balance sheet total, turnover and/or number of employees. When it comes to the scope of the company’s supply chain, “[d]ue diligence could apply to the entire supply chain or be limited to controlled corporations and business partners.” The report emphasizes that taking a full value chain/ supply chain approach is expected under international standards, and in this case, “[d]ue diligence extending far along the supply chain could be limited by requirements emphasising the proportionality of the obligation”, in other words, “a company could focus its attention on areas, operations or subcontractors involving the highest risks.” When it comes to stakeholder engagement, the report provides that a “separate obligation on stakeholder consultation should be considered. Such an obligation might be an element of impact identification, prevention and/or tracking.” In addition, the law “could impose an obligation to establish a complaints procedure.” The report delves further into range of other elements. For instance, when it comes to enforcement of the law, the report delves into distinct approaches, ranging from: tracking by stakeholders; official supervision (and guidance) and administrative punitive sanctions; official supervision (and guidance), administrative punitive sanctions and liability for damages; and tracking by stakeholders with liability for damages.