New Geopolitical Dimensions of EU Competition and Trade Policies

Authors: Maria Wasastjerna and Essi Ellman

Hannes Snellman Co-Authoring the FIDE Report on Competition and Trade Policy

How is sustainability cooperation viewed in Finland? What are the latest developments in corporate sustainability due diligence?

These questions, among other topical policy developments, are discussed in the Finnish country report of the International Federation of European Law (FIDE). The Competition & Regulatory Team at Hannes Snellman together with Professor Petri Kuoppamäki at Aalto University contributed to the Finnish report. The report will be published at the FIDE 2023 Congress in Sofia. In this blog post, we address certain selected topics from the report, namely green competition policy and corporate sustainability due diligence.

Green Competition Policy —  How Is Sustainability Cooperation Viewed in Finland?

Sustainability cooperation is gaining increasing attention in competition law. Competition rules have traditionally been perceived as a roadblock for such cooperation between competitors as the rules prohibit agreements between rivals which restrict competition, for example by leading to increased consumer prices. The ever-increasing awareness of the climate crisis together with the European Green Deal has brought forward long-awaited guidance on what type of sustainability cooperation might be allowed going forward.

Earlier this year, the European Commission (EC) published its draft revised horizontal guidelines. The  draft guidelines include an entirely new chapter on sustainability agreements between competitors, which we have summarised in a previous blog post. In addition to the EU-level guidance, certain competition authorities in Europe have proactively provided their own national guidance on sustainability cooperation. In Finland, the Competition and Consumer Authority (FCCA) is not expected to publish its own specific guidance on this topic and is rather expected to follow the EC’s approach.

The EC’s draft guidelines confirm that agreements not affecting parameters of competition, such as prices and quality of products or services, are not restrictive of competition. The guidelines also provide a “soft safe harbour” for sustainability standardisation agreements that fulfil certain criteria.

An especially interesting question in relation to the draft horizontal guidelines is how to balance between the competitive harm and sustainability benefits caused by a sustainability agreement. A sustainability agreement that infringes the cartel prohibition can still be acceptable if it meets the exemption under Article 101(3) TFEU by fulfilling the four cumulative criteria of (i) efficiency, (ii) indispensability, (iii) benefits to consumers, and (iv) no elimination of competition.

Although the draft guidelines provide some new sustainability-related criteria for assessing efficiency benefits and consumer benefits, the exemption still remains narrow:

• Companies need to provide proof that the cooperation produces objective, concrete, and verifiable efficiencies that overweigh the competitive harm (such as increased prices).
• Collective consumer / sustainability benefits (such as cleaner air) would need to affect the same group of consumers as the competitive harm. Although the idea of compensating the same consumers that suffer from the competitive harm is somewhat logical, it sets the bar high for companies contemplating sustainability initiatives.

The new sustainability guidance is a positive development, and it recognises (at least to some extent) the significance and role of the private sector in creating a more sustainable economy. However, the approach to sustainability cooperation in the guidelines remains quite cautious, and the guidelines can be criticised for leaving room for interpretation and possibly deterring businesses from pursuing sustainability initiatives.

We continue to closely monitor developments on this front, both nationally and on EU-level. Our Competition & Regulatory Team is happy to engage in any questions related to this topic

Corporate Sustainability Due Diligence — What Are the Latest Developments in Finland?

While there is currently no national legislation in force regarding corporate responsibility, the Finnish Government is, however, considering enacting such law. The aim of the new legislation would be to lay down provisions on companies’ due diligence obligation with regard to any adverse effects on human rights and the environment in their business operations.

In March 2022, the Finnish Ministry of Economic Affairs and Employment published a memorandum investigating the potential due diligence obligations that could apply to Finnish companies.  The memorandum assessed in more detail the legislative options for meeting the obligations, the effect of the obligations on human rights, the environment, and companies, as well as the conditions for implementing the legislation. However, the memorandum did not include concrete regulatory proposals on, for example, the scope of companies that would be subject to the legislation. Instead, it presented alternative legislative solutions, such as different options for the scope of the obligation.

Although the timeline of potential national legislation on corporate social responsibility is yet unclear, an EU Directive on Corporate Sustainability Due Diligence is simultaneously being prepared. The proposed directive would set a sustainability due diligence obligation to certain large companies, and the key requirements and concepts of the proposal include the following:

• Companies need to identify, prevent, and bring an end to any negative human rights or environmental impacts in the company’s own operations, their subsidiaries, and their value chains (meaning both direct and indirect business relationships).
• Negative human rights effects include forced labour, child labour, inadequate workplace health and safety, and exploitation of workers, whereas negative environmental impacts include greenhouse gas emissions, pollution, biodiversity loss, and ecosystem degradation.
• Companies should integrate due diligence into all their corporate policies and have in place a due diligence policy that is updated annually.
• Violating the due diligence obligations can lead to sanctions: the proposed directive requires sanctions to be effective, proportionate, and dissuasive, and any pecuniary (financial) sanctions should be based on the company’s turnover.

The proposed directive and its requirements are introduced in more detail in our previous blog post (in Finnish).

It is anticipated that corporate responsibility or ESG, as commonly referred to, will become more regulated in Finland in the future. Considering that the contemplated EU Directive on Corporate Sustainability Due Diligence would be implemented in national legislation and political pressure on corporate responsibility is increasing, due diligence obligations and ensuring human rights and environmental law compliance throughout the value chain will likely become a reality in the foreseeable future. Despite Finnish companies’ strong commitment to the respect of human rights, the monitoring systems of complying with different fields of ESG are still insufficient and will likely be enhanced by the proposed Directive.

Our cross-practice ESG Team help companies identify and navigate the legal challenges and possibilities presented by various ESG initiatives to meet new regulatory compliance and stakeholder demands facing businesses across sectors and industries.

The Finnish country report will be published at the FIDE 2023 Congress in Sofia, bringing together practicing lawyers, representatives from EU and national courts and institutions, as well as internationally acknowledged academics. Read more about FIDE’s 2023 Congress here.