"Memorandum on the due diligence obligation – Review of the national corporate social responsibility act", 12 April 2022

The Government Programme of Prime Minister Sanna Marin’s Government includes the aim to make Finland a leading country in social responsibility. The Government Programme includes an entry on preparation of a report with the purpose to enact a law on corporate social responsibility.

The legislation on corporate social responsibility would lay down provisions on companies’ due diligence obligation with regard to their business operations. A memorandum prepared by the Ministry of Economic Affairs and Employment 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.

The memorandum expands on the Judicial Analysis that Ernst & Young Oy prepared for the Ministry of Economic Affairs and Employment. The due diligence legislation could lay down provisions on the measures required of companies to identify, prevent, mitigate and remedy the adverse effects to human rights and the environment caused by the companies’ operations and to monitor the measures implemented by them. The legislation would provide for many different ways to meet the obligation. Companies may be required to carry out various detailed measures.

The scope of application of the act may be narrowed, for example, on the basis of the company’s size or sector. Extending the scope of the act to supply chain may also vary depending on whether the obligation would only apply to enterprises controlled by the company or whether it would also include the companies’ supply chains. The obligation would incur costs for companies and it could undermine the competitiveness of domestic companies in relation to companies in competitor countries if the obligation were implemented as national regulation alone.

In the absence of available research data, it is also uncertain whether the obligation would result in positive impacts for human rights and the environment. Lighter regulation of due diligence would be easier to implement legally, but the benefits of such regulation may be limited in relation to the regulatory burden. Regulation that imposed stricter due diligence obligation on companies would involve significant questions requiring further assessment...