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First published:    7 June 2024, 16:24 CEST
Last update:          13 June 2024, 15:25 CEST

Due diligence assessments for sustainable business practices

Table of Contents

1) About us

1.1) Ethical guidelines and procedures

2) Method for due-diligence assessments

2.1) Internal assessments and board endorsement
2.2) Supplier survey

3) Findings from due-diligence assessment

3.1) Discovered actual negative consequences for fundamental human rights or decent working conditions
3.2) Discovered potential negative consequences for fundamental human rights or decent working conditions

4) Measures

4.1) Ongoing measures
4.2) Planned measures
4.3) Results from measures

5) Contact

6) Signatories

1)    About us

Baltic Sea Properties is a Norwegian public listed, open-ended and fully integrated investment company. The company is among the Baltics’ leading real estate investors and developers – owning a diversified cash flow generating portfolio of modern real estate in the logistics, industrial and commercial segments.

Our strategy is to develop long-term relationships with strong clients and to hold high-quality assets in attractive locations. We grow our portfolio by own developments and acquisitions with the objective to maximize shareholder values and the company’s dividend capacity. The property management is conducted through fully-owned subsidiaries by a professional management team with deep knowledge of the Baltic real estate market.

1.1)      Ethical guidelines and procedures

Responsible business conduct involves systematic efforts by companies to identify, prevent, mitigate, and report on how businesses address the risk of negative impacts on people, society, and the environment. We therefore welcome the Transparency Act as it will drive further measures linked to human rights and decent working conditions.

Baltic Sea Properties is subject to strict rules and oversight as a Norwegian publicly listed company (BALT) on Euronext Growth Oslo (MTF under Oslo Stock Exchange). We are compliant with the EU Market Abuse Regulation (MAR) and have our own comprehensive insider trading policy. We adhere to the Norwegian Code of practice for Corporate Governance (NCCG). Our leaders have completed professional corporate governance education in Norway and at the Baltic Institute of Corporate Governance (BICG).

We have a zero-tolerance policy towards corruption and are a strong supporter of the “open book” principle of co-operation and general transparency in business. We consider ourselves to be a socially responsible company.

2)    Method for due-diligence assessments

2.1)      Internal assessments and board endorsement

Baltic Sea Properties AS is committed to upholding the principles of transparency and accountability as outlined in the Transparency Act. Our adherence to this legislation involves a rigorous process of due diligence assessments aimed at ensuring the protection of fundamental human rights and the promotion of decent working conditions throughout our operations. Our approach to complying with the Transparency Act begins with comprehensive internal evaluations to identify and prioritize potential risks associated with violations of human rights and working conditions. These assessments are conducted with a focus on both the severity and likelihood of such risks.

As our primary operations are centred in the Baltics, particularly in Lithuania, we concentrate our due diligence efforts on this region. Recognizing the heightened risk factors identified by the International Trade Union Confederation (ITUC), we prioritize our assessments accordingly. To effectively manage these assessments, we categorize our suppliers resulting in the following priority:

In line with our commitment to transparency and accountability, we focus our attention on suppliers categorized with higher risk levels, namely construction, property services, and designers. Selected suppliers within each category undergo thorough surveys and ongoing follow-up to ensure compliance with our standards and regulations.

To facilitate this process, our two regional managing directors have been appointed to engage our selected suppliers. Their role was to guide suppliers through the survey process, aiding as needed, and nurturing strong relationships with our partners. We view this close dialogue with our suppliers as a strategic advantage, enabling us to address potential issues proactively and maintain high standards of ethical conduct throughout our supply chain.

The work on the Transparency Act is rooted in the Board of Directors. The formal adoption of its principles was done in a board meeting on the 10^th of April 2024. Responsibility for the implementation and follow-up of the guidelines has been assigned to Espen Aas, Financial Controller & Investor Relations.

2.2)     Supplier survey

For the supplier survey we used Factlines. To maintain up-to-date information regarding our suppliers’ conditions. The recent survey we conducted achieved a response rate of 78%, with 9 suppliers invited. The survey includes inquiries related to fundamental human rights and decent working conditions, in line with OECD guidelines. The self-reporting questionnaire covers various critical aspects:

• Corporate responsibility, strategy, and guidelines
• Supply chain oversight, insight, and control
• Risk assessment and due diligence processes
• Evaluation of country-specific risks
• Management systems
• Conditions and rights within the workforce
• Indigenous peoples’ concerns and environmental impact
• Conflict mineral sourcing
• Anti-corruption measures

The data collection provides a basis for assessing risk in the supply chain by using updated information from our suppliers, and the survey forms the basis for further follow-up. If self-reporting or other indicators signal significant deviations, these are followed up with the respective suppliers. The purpose is to prevent and reduce negative consequences in collaboration with the supplier.

3)    Findings from due-diligence assessment

The assessment conducted by the International Trade Union Confederation (ITUC) provides valuable insights into the protection of labour rights across different countries. In the case of Lithuania, its score of 2 from ITUC indicates sporadic violations of collective labour rights. Although workers generally enjoy the freedom to associate and participate in collective bargaining to enhance their working conditions, they also face recurrent challenges. These challenges often arise from governmental or corporate actions that hinder workers’ ability to fully exercise their rights. As a result, the risk of encountering obstacles related to labour rights protection is slightly elevated in Lithuania compared to countries with a better score, such as Norway. While the disparity between the scores is not substantial, it underscores the importance of considering potential risks associated with labour rights when operating in these countries. (ITUC, Global Rights Index 2023.)

These initial factors are not exclusive to the Baltics, but we believe that by identifying these initial risk factors, Baltic Sea Properties AS can develop targeted strategies to promote human rights and decent working conditions across its operations in the region.

3.1)      Discovered actual negative consequences for fundamental human rights or decent working conditions

No actual negative consequences for fundamental human rights or decent working conditions were uncovered through our due-diligence assessment.

3.2)     Discovered potential negative consequences for fundamental human rights or decent working conditions

From our supplier survey, we have uncovered some notable issues among our suppliers. We prioritize potential risks related to human rights as most severe. The questionnaire is divided so that respondents can answer “Yes,” “No,” and “Don’t know” to specific questions. For example, we assess the potential risk higher where a supplier has answered “No” to having ethical guidelines, compared to when a supplier has answered “Don’t know” to the same question. The findings are grouped into 3 themes.

Human rights and labour rights: The results from the supplier survey indicate a need for improvement concerning the prohibition of conflict materials and bribery. Four suppliers state that they do not have a prohibition on the use of conflict materials in contracts, and two have stated they are unsure if they have such a prohibition. Furthermore, two suppliers state that they do not have a policy prohibiting bribery and corruption, and one has stated it is unsure if such a policy is in place.

Whistleblowing channel and policies: Two suppliers report to not have a whistleblowing channel in their company, and an additional supplier is uncertain about its existence. Moreover, three suppliers report that they do not have ethical guidelines in place, with an additional supplier also unsure about this aspect.

HSE (Health, Safety, and Environment): The survey has identified opportunities to strengthen corporate governance through the implementation of an HSE system, as two suppliers state they do not have this. It should be noted that the absence of a system is not the same as lacking effective procedures for maintaining good HSE practices.

These findings emphasize the significance of our commitment to addressing these issues and collaborating closely with our suppliers to encourage improved ethical practices across our supply chain. Through enhanced communication, transparency, and collaboration, our aim is to ensure strict adherence to ethical standards, human rights, and decent working conditions.

4)    Measures

4.1)      Ongoing measures

In light of the due diligence assessment results, we have taken the following actions:

1. We are conducting further follow-up with a supplier in the construction industry who reported to not have implemented a Health and Safety Management system.
2. We have initiated the development of our own code of conduct and a supplier code of conduct. These documents will incorporate dedicated sections addressing human rights and decent working conditions.
3. Additionally, we have implemented a dedicated channel to address inquiries concerning both our own and our suppliers’ compliance with Transparency Act §6. This channel is accessible on our website.

4.2)     Planned measures

Looking forward, we are committed to expanding our due diligence assessment to encompass more suppliers, allowing for a more thorough examination of risks within our value chain.

Additionally, we will formally integrate supplier assessments into Factlines as part of our prequalification process for selecting new suppliers.

We will also include in our standard contracts that suppliers must complete the Transparency Act survey in Factlines before service delivery can commence.

To further improve transparency in our supply chain, we also plan to work with our suppliers over the next 12 months to significantly reduce the share of questions answered by “don’t know”.

These steps reflect our proactive approach to enhancing human rights and promoting decent working conditions across our supply chain.

4.3)     Results from measures

As this marks our inaugural year of reporting measures, our focus is primarily on internal preventive actions, notably on the implementation of a Code of Conduct and a Supplier Code of conduct. Furthermore, we have implemented a dedicated point of contact within the suppliers evaluated through our due diligence assessment. This initiative aims to streamline our efforts in advancing decent working conditions and upholding human rights throughout our operations.

5)    Contact

Inquires related to the Transparency Act may be directed to transparency@balticsea.no.

6)  Signatories

• Lars Christian Berger — CEO
• James Andrew Clarke — Chairman of the Board
• John Afseth — Board Member
• Bjørn Bjøro — Board Member
• John David Mosvold— Board Member