A directive on corporate sustainability due diligence is being prepared in the EU. The proposed directive would hold large companies liable for the negative impacts of their operations and value chains. The Member States will have to implement the directive within two years of its entry into force.
25.10.2023
Case law will ultimately clarify the interpretation of the new CSDD Directive
Jussi Nieminen, Anna Kuusniemi-Laine & Anders Forss
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The proposed directive would obligate companies to set up corporate policies with which they can ensure their human rights and environmental due diligence. Companies would have to identify, prevent, mitigate and correct the negative impact of their operations on a practical level and amend their strategies to match the 1.5 °C target in line with the Paris Agreement.
The proposed directive would require corporate management to see to the execution of due diligence measures. Domestic authorities would supervise compliance with the obligations, and failure to comply could lead to significant sanctions for the company. In Finland, it remains unclear which authority would hold jurisdiction or whether a new authority would need to be established.
While many Finnish companies are leaders in sustainable business, the due diligence obligation creates the need to re-evaluate business structures and strategies from a wider perspective that includes the entire value chain. The first stage of adapting to the changes introduced by the directive will most likely be partly mechanic implementation of the regulation with measures such as internal audits and agreement reviews. However, the impacts of the changes extend deeper: business models must be assessed critically and continuously, and sustainability must be made a cornerstone of corporate strategy.
The proposal is not unambiguous in all respects, and we expect that many issues will have to be settled through legal proceedings. For example, the level of due diligence that is required of companies will ultimately be determined in case law.
Even if corporate policies are in order and the appropriate clauses are included in agreements, proving and assigning ultimate liability may prove to be complicated. For example, will the corporation or the subcontractor be held liable? And what is the liability of company management if the company has failed to comply with its due diligence obligation and is therefore issued a fine corresponding to 5% of its global revenue?
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Latest references
A. Ahlström – ESG advisory and corporate sustainability due diligence process planning
We advised A. Ahlström in establishing a corporate sustainability due diligence process plan which incorporates best practices and tailored solutions based on our expertise within relevant business sectors. Our comprehensive ESG offering also included tailored training for members of the investment team and management team and the board of directors of several portfolio companies. ‘The ESG team at Castrén & Snellman provided us with legal and practical advice around the ESG regulatory tsunami that we need to incorporate in our ESG work,’ comments Camilla Sågbom, Director, Sustainability and Communications, at A. Ahlström Oy. A. Ahlström is a family-owned industrial company, developing leading global specialist positions in Forest & Fiber and Environmental technology sectors.
Case published 5.9.2024
SATO – Legal design of Code of Ethics
We drafted new Codes of Ethics for SATO to use internally and with business partners. The client wanted to get concise and legally up-to-date Codes that are easy to understand and look fresh. We drafted completely new Codes, designed a clear structure for them and designed and implemented their layout. We made separate Codes of Ethics for internal use and for business partners in order to meet the exact tone and style suitable for both end user groups. We also made English translations of the Codes of Ethics. The end product was practical and interactive PDF instructions that are consistent with the client’s visual style. Client insight and taking the target group’s needs into account are some of the main principles of legal design. The client’s wishes also focused on the end users of the Code of Ethics, i.e. the company’s employees and business partners. In this project, efficient project management and an open line of communication helped us understand the wishes of the client company and deliver an end product with which the client was very happy. Active dialogue with the client was an important quality factor in this agile and iterative project. In the first phase we provided the client with a prototype and then continued the design work based on the comments we received. The appearance of the final product was designed in accordance with the client’s graphical guidelines. SATO Corporation is an expert in sustainable rental housing and one of Finland’s largest rental housing providers. SATO owns around 25,000 rental homes in the Helsinki Metropolitan Area, Tampere and Turku. Approximately 45,000 residents live in SATOhomes. The project involved experts in legal design, linguistics and graphic design, and members of our Legal Tech team.
Case published 6.2.2024
Mérieux Equity Partners – Acquisition of Labquality
We acted as the legal and ESG advisor to Mérieux Equity Partners on the acquisition of a majority stake in Labquality through a leveraged buyout by its buyout fund, Mérieux Participations 4. Existing shareholders of Labquality, including Cor Group and the management, will reinvest a portion of their proceeds into the company in connection with the transaction. Headquartered in Helsinki, Finland, Labquality is a Nordic player specialized in EQA, CRO activities and regulatory affairs, with a strong local presence in Central and Eastern Europe. The company provides a comprehensive array of services for the healthcare, medical technology, and pharmaceutical industries. The company, employing over 120 professionals and supported by a network of more than 150 external experts and consultants across its offices in Finland, Germany, and Poland, serves a diverse clientele of over 8,000 customers, including major pharmaceutical companies in over 60 countries. Mérieux Equity Partners (MxEP) is an AMF-accredited management company dedicated to equity investments in the Healthcare and Nutrition sectors. MxEP actively supports entrepreneurs and companies with differentiated products and services, giving them privileged access to its sector expertise and international network. The transaction will enable Labquality to pursue its buy & build strategy in Europe to accelerate its CRO activities while continuing strong and recurring growth in the EQA segment. Labquality will benefit from MxEP’s sector expertise and financial resources to achieve its ambition of becoming a leading European CRO and EQA platform, with fully integrated regulatory consulting capabilities to serve major customers across Europe.
Case published 4.12.2023
Alko – Project to develop corporate sustainability
We assisted Alko Inc. in a project where the corporate sustainability of the listing process and product range management is improved while taking into account Alko’s monopoly position and competition law issues. The project relates to the implementation of the due diligence duty, and it covers environmental, climate and human rights aspects of the supply chain.
Case published 1.12.2023