Corporate Social Responsibility Act–The Next Step in CSR Regulation?

The regulation of corporate social responsibility has traditionally been voluntary-based, and the related legislation focused on reporting and monitoring obligations. While it is true that soft-law mechanisms, such as voluntary frameworks, certificates and reporting serve to educate the public and provide responsible actors with welcome exposure, these approaches are often criticised as being toothless—and with good reason.

One solution to this could be an EU-wide corporate social responsibility act. With a binding act in place, it would no longer solely be up to consumers and investors to make good and ethical choices—companies themselves would have to genuinely shoulder their responsibility. Liability for damages along with civil and criminal sanctions would give the law some heft, and public trials would serve as a deterrent to bad actors and encourage parties injured by irresponsible behaviour to seek legal remedies.

Profit from Social Responsibility?

One of the issues that has come up in the Finnish corporate social responsibility debate is whether responsible behaviour is in conflict with the profit-seeking goal set in the Finnish Companies Act. Listening to the arguments presented, a narrow, quarterly approach to business and a short-term goals have started to feel old-fashioned: modern and successful companies take a long view of profit-seeking and see corporate social responsibility as an added-value feature, not a cost item. These companies make social responsibility a part of their valuation alongside traditional performance indicators.

These companies also see corporate social responsibility as risk management in the sense that neglecting environmental issues or social obligations could ruin their entire business. Once lost, a reputation can be impossible to regain, and the consequences of bankruptcy affect every stakeholder group, from employees to investors and, ultimately, the economy as a whole. This same rising trend can also be seen in new responsible investment products, such as green bonds, and in the increasing popularity of social impact investing.

The French Example

The French have sought to solve the corporate social responsibility problem by enacting a ‘due diligence act’ (loi sur le devoir de vigilance) in 2017. This year is an interesting time in France, as the first reports required by the new act are being completed. It is an ambitious act, as it not only sets forth binding duties of care, but also provides for complaint and monitoring mechanisms, sanctions and damages. The act is built around a core of human rights and supply chain monitoring.

A Challenge for Finland’s Presidency

NGOs have been lobbying the EU for corporate social responsibility legislation for years. In Finland, this demand has come up, for example, in the Ykkösketjuun campaign, which is fronted by a large number of prominent companies, NGOs and trade unions. The Finnish Ministry of Economic Affairs and Employment has a Committee on Corporate Social Responsibility, but there are no actual legislative initiatives relating to corporate social responsibility in the works.

Finland now has the opportunity to roll up its sleeves and put an EU-wide, binding corporate social responsibility act on the agenda of its EU presidency. As a model country of equality, openness and abiding by the law, this role would be a perfect fit for Finland. We can hope that the new Parliament about to be elected will find room for this on its own agenda, as well.

This blog was first published in Finnish on Finsif’s website on 27 March 2019 at https://www.finsif.fi/yritysvastuulaki-vastuullisuussaantelyn-seuraava-askel/