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   Corporate Sustainability Reporting Directive: Schedule Confirmed, Reporting Obligation Extends to Listed SMEs

   The article continues after the picture. The CSRD will enter into force in four phases: The reporting obligations applied to SMEs will be more limited, and SMEs that do not fall under the scope of application of the Directive can also voluntarily observe them as of 2026.

   Published: 9.9.2022

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   The EU is currently trying to decide what kind of intelligent systems we will use in the future

   Most of the developed countries can agree with the EU’s view on the prohibited uses of artificial intelligence, but is the EU able to produce AI regulation that would serve as a model for the whole world? Or will heavy AI regulation in the EU lead to a situation where Europe is left behind in AI development and eventually has to adapt to standards that have formed on other markets? Furthermore, is the new regulation actually necessary? For example, the frequently discussed matter of surveillance based on facial recognition in public places has already been opposed by the European Data Protection Board within the current regulation. Unlike before, the AI Act concerns a specific technology. For this reason, the proposal raises the question: is the Act aimed at regulating the technology or the phenomenon for which the technology is used? A lot of critique has been raised, indicating that the existing regulation, such as the GDPR and product liability and product safety regulations, could already offer sufficient protection for applying a specific technology. The GDPR regulates automatic decision-making based on personal data. It requires that the data is relevant, representative, accurate and complete. Particularly the requirement of completeness has long been debated: is any operator able to ensure the completeness and accurateness of data in any circumstances? The key concepts of the proposal have also been criticised as too ambiguous, narrow or overlapping with other regulations. In addition, the proposal includes rather wide but ambiguous obligations for high-risk applications, such as wide obligations concerning human oversight. However, this does not guarantee that the persons conducting the oversight can actually detect and address deviations, which has become apparent when testing the operation of self-driving cars, for example. The obligations will be expensive for those parties that want to do what is right, whereas it may turn out to be difficult to call deceitful operators to account. Despite the critique, the AI Act is on its way, so it is advisable to start preparing for its entry into force. The most important thing at the moment is to assess which of the three AI risk categories is the one that your application belongs to: unacceptable, high-risk or unregulated. If an application under development is categorised as a high-risk application, make sure that it fulfils the requirements of the Act, such as establishing a risk management system, drafting technical documentation, automatic recording of events and ensuring human oversight. 

   Published: 5.9.2022

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   The Artificial Intelligence Act and consumer protection – are you ready?

   The definition of AI and the Artificial Intelligence Act in light of consumer protection A typical problem concerning AI is that it is very difficult to define, at least exhaustively. The Act defines AI as a software that has the ability, for a given set of human-defined objectives, to generate outputs such as content, predictions, recommendations, or decisions which influence the environment with which the system interacts . AI is not offered to consumers in a raw format. Instead, consumers receive products or services that are controlled by sophisticated algorithms and software. The proposed regulation does not create new consumer rights or form new appeal proceedings as such. According to the proposal, when harmful AI practices and systems do not fall under the scope of prohibited AI practices as defined in the proposed regulation, they would be covered by general data and consumer protection legislation. The focus of the proposed regulation is on defining certain prohibited practices and strictly regulated high-risk systems. These practices are examined both on an industry and on a sector basis. Prohibited practices The proposal prohibits the use of AI systems that create an unacceptable risk. These systems create such an obvious threat to the safety, rights and livelihoods of people that the regulation prohibits their use entirely. Such systems include ones that have the potential to manipulate people through subliminal techniques beyond their conscious awareness and that are likely to cause psychological or physical harm. The proposal also prohibits certain systems that use social scoring, as they are considered contrary to fundamental values of the EU. They can also lead to discrimination. High-risk systems The proposal classifies as high-risk such AI systems that are intended to be used as safety components of products, for example, as well as systems that pose a high risk of harm to health and safety and that are used in specific areas. The proposal lists some examples of high-risk AI systems, including systems used as safety components in the management and operation of the supply of water, gas, heating and electricity, and systems used to evaluate the creditworthiness of natural persons in relation to essential private and public services. The obligations of providers of high-risk AI systems are laid down in Article 16 of the proposed regulation. Among other things, such providers of AI systems shall: Obligation to disclose information The obligation to disclose information is central to the general principles of consumer protection. In the context of AI use, the obligation to disclose information is therefore a general principle for all AI systems affecting consumers. This means that consumers must have easy access to sufficient, clear and timely information on the existence of an AI system, its deductive processes and possible outcomes and its effects on consumers. Consumers must also be told how they can request the system’s operations to be reviewed or fixed and how they can contact a competent person. Information on disputing the matter must also be provided. Further specifications to AI regulation The Artificial Intelligence Act is meant to be a part of a larger whole, and some parts are not yet known. For example, there will be a separate proposal concerning the liability issues surrounding AI. It is likely that this proposal will be applicable to consumer protection as well. The proposal will also have several connecting factors to existing EU regulation, such as data protection and market supervision regulation and the general EU regulation on consumer protection binding on businesses. Sources: https://www.kkv.fi/ajankohtaista/lausunnot/lausunto-u-28-2021-vp-valtioneuvoston-kirjelma-eduskunnalle-komission-ehdotuksesta-euroopan-parlamentin-ja-neuvoston-asetukseksi-tekoalyn-harmonisoiduksi-saantelyksi-artificial-intelligence-act/ https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52021PC0206&from=EN

   Published: 30.8.2022

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   New Climate Change Act Aims at Carbon Neutrality

   Planning system for climate policy The new Act provides for a climate policy planning system, which determines the reduction targets for greenhouse gas emissions, the goals for the strengthening of carbon sinks and adaptation to climate change, and the measures required to reach these goals and targets in different administrative branches. The goal for strengthening carbon sinks was added to the new Act as a new element. In accordance with both the current and the new Climate Change Act, the planning system includes a long-term climate change policy plan, a medium-term climate change policy plan and a climate change adaptation plan. In the new Climate Change Act, the planning system is supplemented with a climate plan for the land use sector to be prepared at least every other electoral term. New climate objectives The new Climate Change Act also lays down provisions on new climate objectives. The target of the Act and the climate policy planning system laid down in the Act is to make sure that Finland reaches carbon neutrality by 2035. Carbon neutrality means that greenhouse gas emissions are at most as high as their removals.  The new Climate Change Act also includes new emission reduction targets for 2030 and 2040. The objective is to reduce the greenhouse gas emissions of the effort sharing and emissions trading sector by at least 60 per cent by 2030 and at least 80 per cent by 2040 compared to 1990 levels. In the new Climate Change Act, the 80 per cent emission reduction target set for 2050 in the current Climate Change Act was updated so that the target is to reduce emissions of the sectors by at least 90 per cent by 2050 but aiming at 95 per cent compared to 1990 levels. Act to be supplemented The Ministry of the Environment is preparing an amendment to the Act that will introduce a new obligation to prepare climate policy plans on a municipal, county or regional level. The Act will also be supplemented with a provision on the basis of which the Government’s decisions based on the Climate Change Act can be appealed to the Supreme Administrative Court. Parliament has required the Government to submit a proposal regarding the said amendments by the end of November 2022. Climate Change Act guides administrative measures The current and new Climate Change Act concern the planning of climate change policy in Finland and the monitoring of its implementation, i.e. the tasks of the authorities. We are closely monitoring the further preparation of the amendment to the new Climate Change Act as well as the impacts of the tightening climate objectives on substantive legislation directly guiding the operations of companies.

   Published: 7.6.2022

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   Plan to speed up green transition investing by providing temporary priority processing and expedited appeals – statements can be issued

   The goal of the amendments is to promote the green transition and the investments it requires by speeding up the processing of related permit applications and appeals.  Priority permit procedures If a project promotes the green transition, related permit applications under the Environmental Protection Act and the Water Act would, at the applicant’s request, receive priority processing at the Regional State Administrative Agency, which means they would be processed faster. The legislation would include a comprehensive list of the projects that would be eligible for prioritising over other permit applications under the Environmental Protection Act and the Water Act. Eligible projects would include projects concerning renewable energy and electrification of industry, manufacturing and utilising hydrogen, capturing, utilising and storing carbon dioxide, battery plants, and manufacturing, reusing and recycling battery materials.  Another prerequisite for priority processing would be that the applicant can sufficiently demonstrate that the operation takes into account the principle of ‘Do No Significant Harm’ (DNSH). The applicant needs to provide a written assessment of any significant risks to the environmental objectives of the EU Taxonomy Regulation ((EU) 2020/852) caused by the project (a so-called DNSH assessment). These objectives are climate change mitigation, climate change adaptation, the sustainable use and protection of water and marine resources, the transition to a circular economy, pollution prevention and control, and the protection and restoration of biodiversity and ecosystems. The reason for this assessment requirement is that priority processing is meant to be an incentive for realising investments that account for the DNSH principle. However, the Ministry of the Environment’s proposal does not clearly state how, on the one hand, applicants should demonstrate compliance with the DNSH principle and, on the other hand, the authorities should verify this compliance. First of all, the proposal refers to the environmental objectives of the Taxonomy Regulation but does not make a reference to the regulation’s DNSH assessment. According to the reasoning, however, this assessment would be applied and the assessment criteria would correspond with the general DNSH assessment criteria of the Taxonomy Regulation. The proposal does not make a direct reference to the delegated regulations supplementing the Taxonomy Regulation that lay down the technical screening criteria. Second, applicants could also make use of the assessment for financing applications under the Union’s Recovery and Resilience Facility (RRF) if it can sufficiently demonstrate that the project takes the DNSH principle into account. The DNSH principle is based on the Taxonomy Regulation for RRF as well, but the European Commission has provided separate technical screening criteria for applying the DNSH principle for RRF. The Finnish Environment Institute has drafted a separate guidance on implementing the DNSH principle for measures under the Finnish recovery and resilience plan. Clarifying the proposal in terms of the applicable screening criteria would help both the applicants and the authorities. Unless this is done, there is a risk that the ambiguous screening criteria will create undue administrative burden for the applicants and lengthen the processing times, defeating the purpose of the amendments – the advancement of the green transition. According to the proposal, in practice, the Regional State Administrative Agency would notify the applicant on its decision to prioritise the application’s processing. The applicant would not have the option to appeal this priority decision, and it could only be appealed in connection with the permit decision of the principal matter. Appealing the priority decision only after the matter is processed cannot be deemed efficient. In this respect, the proposal refers to the applicant’s option to re-request priority processing and to supplement the DNSH assessment during the procedure. Regional State Administrative Agencies would implement priority processing as of the entry into force of the amendments until the end of 2025. Applicants could also request priority processing for permit matters that are already pending when the amended Act enters into force. Handling appeals as urgent in administrative courts Administrative courts would, by virtue of office, handle as urgent any appeals that concern expedited permit decisions under the Environmental Protection Act and the Water Act and that received priority processing by the Regional State Administrative Agency. This would ensure that permit matters would be treated as a matter of urgency both during permit processing and in connection with any appeals, thus speeding up the overall process. However, the proposal does not address how the administrative courts would account for the right to appeal the Regional State Administrative Agency’s decision on priority processing. The amendment being drafted would also include new provisions to the Land Use and Building Act (132/1999) concerning appeals on town plans considered significant for the production of renewable energy and local master plans guiding the construction of wind power.  Administrative courts would handle these appeals as urgent. The urgent handling of applicable appeals would be in effect in administrative courts as of the entry into force of the amendments until the end of 2027. Statements to the amendments can be issued Statements to the amendments under preparation can be issued until Tuesday 7 June 2022. The amendments are scheduled to enter into force on 1 January 2023. Authors:  Matias Wallgren,  Sanna-Mari Seppälä,  Kanerva Sunila and  Laura Aitala

   Published: 3.6.2022

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   Ecological Compensation – Challenges and Opportunities

   The overall reform of nature conservation legislation is currently underway. The government proposal concerning the Nature Conservation Act was submitted to Parliament on 12 May 2022 and the new act is intended to enter into force on 1 June 2023. One entirely new addition to the Act in particular has already given rise to a great deal of debate. The amendment in question concerns voluntary ecological compensation. Pursuant to the proposed Nature Conservation Act, ecological compensation refers to “ offsetting the degradation of species and habitat types by improving the state of species and habitat types outside the area of degradation after to primarily avoiding and secondarily minimising the degradation and, if possible, restoring the state of the degraded species and habitat types in the area of degradation ”. The degradation of a habitat type or the natural habitat of a species should be compensated in full. A certification for the offsetting measures can be applied for from the Centre for Economic Development, Transport and the Environment. Ecological compensation must be carried out as an independent action, which means that implementing the offset cannot be based on existing legislation or other obligations. If the government proposal is approved in its current form, the new Nature Conservation Act will also include provisions on voluntary creation of nature values. It would be possible to receive certification for the created nature values which could then be used for voluntary offsetting. If the area used for creating nature values is large, it could be used for offsetting the environmental impacts of various projects. The created nature values cannot be protected by an authority decision in accordance with the Nature Conservation Act without the consent of the landowner. What can voluntary ecological compensation be used for? The purpose of the proposed legislation is to improve companies’ access to sustainable finance as well as to enable landowners to engage in a new form of business, i.e. the creation of nature values. Moreover, the proposed legislation is designed to support companies in demonstrating corporate social responsibility. The possibility to an authority certification to be included in the Nature Conservation Act may be conducive to promoting the credibility and the bankability of the offset measures while also creating new business opportunities for landowners.   The financing terms in the international financial market increasingly reflect the requirements of both the investors and the financiers that the companies applying for a loan compensate their environmental impacts.  The government proposal makes a particular mention of the regulation concerning the EU taxonomy for sustainable finance and the included ‘do no significant harm’ criteria, pursuant to which attention must be paid to inter alia the environmental objectives concerning the protection and restoration of biodiversity and ecosystems when assessing the environmental sustainability of economic activities. With certified voluntary compensation under the Nature Conservation Act, companies would thus have a new way to demonstrate that their project meets the prerequisites for sustainable finance. The functionality and significance of the proposal remains to be seen. The assessment of ecological compensation will require that the authorities acquire new resources and know-how. A practical challenge in assessing the sufficiency of ecological compensation lies in the fact that ecology is complex and that there are always uncertainties associated with analysing the offset measures’ overall effect on biodiversity. It is evident that the sufficiency assessment will be influenced by the precautionary principle, a well-established principle in environmental law which is proposed to be included in the new Nature Conservation Act. This may complicate the assessment’s foreseeability and transparency from the operators’ perspective. That said, in accordance with the case law policies of the European Commission and the Court of Justice, the application of the precautionary principle must always be in line with the principle of proportionality. Therefore, the functionality of voluntary ecological compensation in practice will also depend on how these principles are reflected in the environmental administration’s application procedure and assessment of the offset measures. The new Nature Conservation Act also presents landowners with a new form of business: the creation of nature values. Landowners can apply for the nature values they create to be entered into a compensation register. Operators can then purchase them for a market-based fee to be agreed and use them as advance offset. A new contractual framework will have to be developed for the offset purchase. Large areas suitable for nature value creation make it possible to engage in compensation pool activity, where nature values are created in advance to be used for ecological compensation. Such operations are already in use in Germany and Sweden, among others. If realised, the Nature Conservation Act reform would enable certified voluntary compensation and offer companies a new way to carry out their social responsibility. However, from the operators’ perspective it is important that the requirements set for the offset measures are realistic and in line with the principle of proportionality.

   Published: 31.5.2022

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   The Family Leave Reform: Longer Leave with More Equal Allocation

   1. to allocate family leaves and care responsibilities in families equally between the parents 2. to strengthen non-discrimination and equality in working life 3. to reduce the gender pay gap. The family leave reform removes some currently used terms such as maternity leave, special maternity leave, paternity leave and parental leave from employment legislation. Terms that will replace them include The reform increases the total parental allowance entitlement, and the parental allowance days are allocated more equally to both parents. The family leave reform also includes amendments to the protection of pregnant employees and employees who have recently given birth as well as amendments to partial parental leave and carers’ leave. This post highlights some of the most significant amendments of the reform in relation to pregnancy and parental leave. The duration of leave is based on the Health Insurance Act The duration of pregnancy and parental leave will be tied to the durations of pregnancy and parental allowance periods pursuant to the Health Insurance Act, as is the case in the current legislation. Employees are therefore entitled to receive income-related parental allowance for the duration of the parental leave and income-related pregnancy allowance for the duration of the pregnancy leave. Restrictions related to taking leave will be provided for in the Employment Contracts Act in the future as well. Pregnancy leave Employees will in the future be entitled to an uninterrupted pregnancy leave of 40 weekdays. Similarly to the current legislation, an employee’s pregnancy leave starts 30 days before the expected due date, unless the employer and the employee agree on a later starting date. The pregnancy leave must, however, be started 14 weekdays before the expected due date at the latest. If the child is born prematurely over 30 weekdays before the expected due date, the employee will be entitled to start the pregnancy leave from the time of the childbirth. Parental leave In the future, parents will be entitled to parental leave of a maximum of 320 weekdays when a child is born or adopted. The right to parental leave days will, however, be divided evenly between the parents so that both parents receive a parental leave allocation of 160 weekdays. A parent may donate a maximum of 63 days of their own parental leave allocation to the other parent, other guardian of the child, the parent’s spouse or the other parent’s spouse. As a rule, the number of parental leave days is child-specific, and the days must be used before the child reaches the age of two. Employees can take parental leave in up to four separate periods of at least 12 weekdays. The employee and the employer can, however, agree that the employee can take parental leave in more periods or in shorter periods. Even though an employee is also entitled to parental allowance for the second child or more, the employee can, however, only take up to four parental leave periods during one calendar year. If a parental leave period continues past the end of a calendar year, that period is deemed to belong to the allocation of the calendar year during which it started. Similarly to the current legislation, the parents may be on parental leave or on pregnancy leave and parental leave at the same time based on the same child for up to 18 weekdays. Notice periods The deadlines for notifying the employer of pregnancy or parental leave will remain the same as under the current legislation. Therefore, the employer must be notified of pregnancy or parental leave primarily two months before the planned starting date of the leave at the latest in the future as well. If the duration of the leave is 12 weekdays at most, the notice period is only one month. Entry into force Even though the provisions related to pregnancy and parental leave enter into force on 1 August 2022, they will only become applicable if the expected due date is on 4 September 2022 or later. This means that if the expected due date is, for example, on 10 August 2022, the current provisions on maternity, paternity and parental leave will still be applied for that child.

   Published: 27.5.2022

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   Corporate Sustainability Reporting Directive: Delay in Implementation, No Mandatory Reporting for Listed SMEs

   This spring, the Council of the European Union and the European Parliament’s Committee on Legal Affairs debated the Commission’s proposal for a Corporate Sustainability Reporting Directive (CSRD).  The Council and the Committee proposed some important amendments to the Directive. First of all, they propose to extend the Directive’s period of implementation by a year. This means that large companies would be met with reporting obligations from 1 January 2024 onwards. With this new deadline, large companies would publish their first reports pursuant to the Directive in 2025, reporting on their 2024 data. Large companies must therefore create a reporting process or amend their existing one in 2023 at the latest. Another major change to the proposed Directive makes reporting voluntary for small and medium-sized enterprises (SMEs). The original proposed Directive made reporting mandatory for listed SMEs. The Commission would draft separate, less rigorous reporting standards for voluntary reporting. The Directive would concern SMEs doing voluntary reporting from 1 January 2026 onwards, which means SMEs would report on their 2026 data in 2027. The Commission would also define sectors that are of higher risk to sustainability and draft separate reporting standards for them. SMEs operating in these high-risk sectors could later be obligated to report. Further regulation is also proposed for subsidiaries: large companies would need to publish their own sustainability reports regardless of their status as a group subsidiary. In the Commission’s original proposal, these subsidiaries did not have a reporting obligation. In addition, reporting requirements would also apply to non-EU companies that operate in the European internal market and meet the same application criteria.

   Published: 18.5.2022

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   Combatting Climate Change and Promoting Sustainability with Sustainable Finance

   Sustainable finance plays a key role in mitigating climate change and promoting sustainability. Achieving the climate targets set by the EU will require allocating funds into environmentally friendly initiatives efficiently with a long-term perspective, and the financial market has started to act upon these challenges. To combat climate change and to finance initiatives mitigating its impact, the financial market has introduced various forms of sustainable finance. The EU Regulation Package for Sustainable Finance in a Nutshell Transitioning to a global low-carbon economy will require massive and long-term investments into environmentally friendly initiatives using both public and private equity. EU regulation on sustainable finance has seen major changes in the last few years, including, among others, the sustainable finance package. This package can be seen as a major step towards a more sustainable future, as its regulations are legal acts that apply automatically to all EU Member States.  The package consists of three regulations: These regulations aim at directing equity towards sustainable investment targets and promoting sustainability in the European internal market. The Taxonomy Regulation uses a classification system to determine sustainable economic activities in different sectors. It also defines principles, environmental objectives and disclosure obligations. The technical screening criteria for different economic activities are defined in lower-tier regulation as Commission Delegated Acts. The goal of the Disclosure Regulation is to strengthen investor protection and improve transparency of sustainability-related information. It also aims at promoting the comparability of investment products marketed as sustainable. The purpose of the Benchmark Regulation is to guarantee the integrity and harmonisation of regulation-compliant benchmarks, making it possible to evaluate and compare the sustainability of different investment products in a reliable manner. Benchmarks are deemed important particularly in measuring the performance of investment products, and they are considered a reliable information metric. As is customary with financial markets regulation, all three Regulations will be complemented with delegated acts, technical screening criteria and regulatory standards. Guidelines from International Loan Market Associations Clarify the Playing Field Different guidelines and principles exist to clarify and harmonise the playing field of the different forms of sustainable financing the financial market has created. These include the Sustainability Linked Loan Principles, Social Loan Principles and Green Loan Principles published by the Loan Market Association (LMA) together with Asia Pacific Loan Market Association (APLMA) and Loan Syndications and Trading Association (LSTA). These principles aim at supporting sustainable economic activities by creating stable and internationally accepted market practices and by harmonising practices in the sustainable loan market. The principles have also succeeded in alleviating the financial markets’ uncertainty created by the inconsistency of the many different guidelines. It is, however, important to note that adhering to the LMA principles is voluntary, and not doing so does not result in any external sanctions. Based on the principles, sustainable loans can be used to finance: The Developing Field of Sustainable Finance Posing a Challenge  Lastly, it is important to emphasise that sustainable finance and its different forms and guidelines are still taking form. It can be stated that for now, the lack of detailed model clauses and the recency of the guidelines can make it difficult to evaluate sustainable finance arrangements. We are interested to see if and how the Loan Market Association will amend its guidelines and how the EU regulation around sustainable finance develops. Sustainable finance will no doubt have a major role in solving many of the important challenges of this century.

   Published: 17.5.2022

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    Green Deal More Topical than Ever

    The sanctions against Russia have demonstrated how highly dependent the European continent is on Rus-sian-supplied fossil fuels. We are sorely in need of increased independent, European energy production. In March, the European Commission urged once again that the Union and its Member States should expedite the changes. Even though some states find it difficult to commit to such change, in the long run our only option is energy production that is renewable and carbon neutral. Intersecting these two energy-related crises is the Green Deal growth strategy, which aims to make the EU climate neutral by 2050. The strategy is accompanied by a comprehensive regulatory package covering everything from the climate and the environment to energy, traffic, industry, farming, sustainable financing, and reporting. Achieving these goals, especially when it comes to the switch from fossil fuels to renewables, places major investment needs on companies. It will also require new skills, collaboration across different sectors, and partners who are committed to meeting the same targets. Some companies will achieve competitive edge through pioneering action, while others will focus their efforts on collaborating with others. Reforms in competition law will play a central part in this. What’s more, permit and tax regulations for energy initiatives are constantly evolving, and future regulation is neither consistent nor coordinated in all respects. Despite all this, companies must follow the laws. In addition to evolving laws and emerging challenges, the change involves a lot of money; it is estimated that achieving the climate goals will require investments of over EUR 1,000 billion every year for the next decade. The EU will finance new innovations generously in the coming years, and investors and financiers expect companies to switch to renewable energy and to commit to sustainability. Now is the time for change – let’s choose our partners and take action.

    Published: 13.5.2022