Vaisala Oyj : Corporate Governance Statement 2020

Observations for a better world

Corporate Governance Statement 2020

Corporate Governance Statement 2020

Vaisala's general governance principles

Vaisala's corporate governance is based on and complies with the laws of Finland and Vaisala's Articles of Association. Consolidated financial statements and other financial reports are prepared according to the International Financial Reporting Standards (IFRS), approved by the EU. The company complies with the rules, regulations, and guidelines for listed companies issued by Nasdaq Helsinki Ltd and Finnish Supervisory Authority as well as Finnish Corporate Governance Code 2020 published by the Securities Market Association.

Vaisala Board of Directors has approved this Corporate Governance Statement in its meeting on February 18, 2021. Deloitte Oy, audit firm, the company's auditor, has verified that the statement has been issued and that the general description of internal audit and risk management systems associated with the financial reporting process conforms to the same in financial statements.

Deviation from the recommendations of the Corporate Governance Code and explanation for the deviation

The term of the members of Vaisala's Board of Directors deviates from the Recommendation 6 of Corporate Governance Code, which recom-mends a term of one year. The term of Vaisala's member of the Board of Directors is determined in accordance with its Articles of Association. Under the Articles of Association, a member's term is three years, beginning at the close of the General Meeting in which the member is elected and ending at the close of the third subsequent Annual General Meeting.

A longer term of office of the Board members is justified by the long-term development of Vaisala's business as well as by the nature of the business. The practice has worked well, and Vaisala's shareholders are committed to it.

Governing bodies

The General Meeting, the Board of Directors, and the President and CEO, assisted by the Management Group, are responsible for the governance of the Vaisala Corporation.

General meeting

The General Meeting is the supreme decision-making body of Vaisala, in which all the shareholders of the company can participate in the supervision and control of the company and exercise their right to vote, speak, and ask questions. The Annual General Meeting is held once a year before the end of June on a date determined by the Board of

General Meeting

Directors. It decides on the matters stipulated in the Finnish Limited Liability Companies Act and the Articles of Association. The decisions are mainly made with simple majority of votes.

The Chairman of the Board of Directors, members of the Board of Directors, and the President and CEO are present at the Annual General Meeting. The auditor is present at the Annual General Meeting. Board member candidates are present at the Annual General Meeting where they are elected. If the above-mentioned person or persons fail to attend the Annual General Meeting, Vaisala notifies the General Meeting of such non-attendance. The members of the Management Group participate in the Annual General Meeting, if possible.

Participation in the General Meeting requires that the shareholder

External audit

Board of Directors

President and CEOManagement Group

Risk manage-mentFinancial and internal control

1

is registered in Vaisala's shareholder register, maintained by Euroclear Finland Ltd, on the record date of the meeting and that he/she registers for the meeting by the date mentioned in the meeting notice.

Shareholders are entitled to have an issue placed on the agenda of the Annual General Meeting, provided that the issue can be decided upon by the Annual General Meeting according to the Limited Liability Companies Act. The request must be submitted in writing to the Board of Directors early enough that the issue can be included in the meeting notice. On its website, the company announces the date by which the shareholder must notify the Board of Directors of an issue to be added to the agenda of the Annual General Meeting. The date is available by the end of the previous financial year.

Vaisala publishes a notice of the Annual General Meeting no more than two months before the record date and no less than three weeks before the meeting on the company's website or in any other way that may be decided by the Board of Directors, or Vaisala may deliver it directly to shareholders when required by law. In addition, Vaisala pub-lishes a meeting notice as a stock exchange release after the Board of Directors has decided on the convening of the Annual General Meeting. Agenda of the Annual General Meeting, proposals on decisions, and meeting documents are available on the company's website at least three weeks prior to the meeting. Documents of the Annual General Meeting will be held on the company's website for at least five years from the time of the meeting. Minutes of the meeting will be published on the company's website within two weeks of the meeting.

Due to the COVID-19 pandemic, the Annual General Meeting 2020 was held on June 3, 2020 in accordance with the temporary legislative act approved by the Finnish Parliament on April 24, 2020 and in a man-ner that the shareholders, auditor, and members of Board of Directors were not present. Shareholders both voted and were allowed to ask questions in advance.

Board of Directors

Competence, composition, and election

The Board of Directors is responsible for the administration and the proper organization of the operations of the company. The Board acts in accordance with the Articles of Association and the applicable legis-lation as well as the instructions and recommendations of the FinancialSupervisory Authority and Nasdaq Helsinki Ltd. In accordance with the Articles of Association, Vaisala Corporation Board of Directors com-prises at least four and maximum eight members. The Annual General Meeting elects all Board members. The Board of Directors elects a Chairman and a Vice Chairman from among its members. Under the Articles of Association, the term of the Board members is three years. The term begins at the close of the General Meeting in which the member is elected and ends at the close of the third subsequent Annual General Meeting following the member's election.

Selection criteria, diversity, and the independence of the members The primary goal in Board member election is to gather capability, expertise, and experience from various technologies, international relations, global business, and strategically significant industries to the Board of Directors. The Board should be considered as a whole that is capable of managing its tasks and duties in the best possible way. The goal of the election of the members of the Board of Directors is to ensure that the Board supports the development of the company's current and future business. In addition, the Board should consist of members of both genders, and the members should have the chance to allocate a sufficient amount of time to managing their tasks. The goal is that there is at least 25% representation of both men and women in the Board of Direcctors.

Vaisala complies with the Finnish Corporate Governance Code 2020 in evaluation of the independence of the members of the Board. The majority of the members of the Board must be independent of the company, and at least two members in this majority must be independent of the company's major shareholders. The Board of Directors evaluates the independence of the members annually based on an overall evaluation. This evaluation of a member takes into account information and analysis provided by the member himself/herself.

Vaisala Board of Directors in 2020 represents adequate expertise and experience as well as diversity on the established goals. All members of the Board of Directors were independent of the company and of the company's major shareholders.

Meetings, duties, and decision-making

The Board of Directors convenes at least eight times a year and if other-wise needed. The President and CEO and the Chief Financial Officeralso attend Board meetings. The other members of the Management Group attend Board meetings as required on the invitation of the Board of Directors. The Board of Directors may, on the basis of the Chairman's decision, establish working groups from among its members in indi-vidual cases to prepare the matters allocated for it in order to ensure the effective organization of the Board of Directors' work.

The Board of Directors operates in accordance with an approved written charter, published on the company's website. Meetings may, if necessary, be held as conference calls, video meetings, or e-mail meetings. Minutes of the meetings are compiled in English, with annually running numbering. The General Counsel acts as the Secretary of the Board of Directors.

A member of the Board of Directors is not allowed to participate if he/ she is biased in that issue between him/her and the company or between the company and a third party when there is a possibility to achieve essential advantage to him/her, which may conflict with the company's interest.

The members of the Board of Directors are bound by obligations related to commercial and trade secrets as well as by the restrictions and requirements of the Market Abuse Regulation (EU) N:o 596/2014 (MAR) and the restrictions and obligations of Vaisala's Insider Policy. In their de-cision-making and other activities, the Board and its members must act in accordance with the interest of the company and all its shareholders as well as in accordance with the principles of due care and data protection.

The Board will have a quorum when more than half of the members are present. Decisions are made on a simple majority basis, and when the votes are even, the Chairman has the casting vote. When the votes for election of the Chairman are even, the Chairman is elected by drawing lots.

The President and CEO is responsible for the execution of the Board of Directors' decisions, oversees their implementation, and reports to the Board on deficiencies or problems observed during the execution.

Main responsibilities of the Board of Directors are

• • to decide on the election and dismissal of the President and CEO

• • to decide on the employment terms of the President and CEO

• • to decide on the election and dismissal of the members of the

  Management Group and their job descriptions based on the

  President and CEO's proposition

• • to ensure that the company has organized internal control of accounting and financial management as well as to monitor the effectiveness of supervision

• • to determine the company's strategy and oversee its implementation and to approve the strategic plans of the business areas

• • to determine the company's long-term targets and to monitor their implementation and to accept business areas' long-term targets

• • to assess the company's and its business areas' annual action plans

• • to approve the company's and its business areas' financial targets

• • to make the business decisions, the value of which exceeds the approval limit of the President and CEO according to the Approval Policy, such as business reorganizations, acquisitions and dives-titures, major contracts and liabilities, investments, and financing arrangements

• • to review and approve the company's most important policies and instructions, such as Approval Policy, Treasury Policy, Disclosure Policy, Dividend Policy, Risk Management Policy, Insider Policy, Code of Conduct, and Anti-Corruption Policy

• • to decide on management remuneration and incentive systems

Members of the Board of Directors in 2020

During January 1-June 3, 2020, the Board of Directors comprised eight members. The Chairman of the Board of Directors was Raimo Voipio, the Vice Chairman was Ville Voipio, and the members were Petri Castrén, Petra Lundström, Jukka Rinnevaara, Kaarina Ståhlberg, Tuomas Syrjänen, and Pertti Torstila. The Board of Directors' secretary was General Counsel Katriina Vainio.

The Annual General Meeting held on June 3, 2020 confirmed that the number of Board members is eight. Petri Castrén, Petra Lundström, Jukka Rinnevaara, Kaarina Ståhlberg, Tuomas Syrjänen, Raimo Voipio, and Ville Voipio continued as members of the Board of Directors. Antti Jääskeläinen started as a new member of the Board. The Chairman of the Board of Directors is Raimo Voipio, and the Vice Chairman is Ville Voipio. The Board of Directors' secretary is General Counsel Katriina Vainio.

Composition of the Board of Directors Dec 31, 2020

Member

Raimo Voipio, ChairmanVille Voipio Vice ChairmanPetri CastrénAntti JääskeläinenPetra LundströmJukka RinnevaaraKaarina StåhlbergTuomas Syrjänen

Member since 1989

Chairman since 1994

End of

term

2023

2015

2021

2017

2022

2020

2023

2014

2021

2019

2023

2016

2022

2019

Born

Education

1955

M.Sc. (Eng.)

1974

D.Sc. (Tech.)

1962

LL.M., MBA (University of Connecticut)

1972

M.Sc. (Eng.), M.Sc. (Econ.), MBA (INSEAD, France)

1966

M.Sc. (Tech. Physics)

1961

M.Sc. (Econ.)

1966

LL.M (Helsinki and Columbia Universities)

2022

1976

M.Sc. (El. Eng.)

Total

Shareholdings include also shares held by the Board of Directors' controlled organizations.

NationalityMain occupation

FinnishBoard professionalFinnishCTO, Si-Tecno Oy

96,712 (K share)Finnish

CFO, Kemira Oyj

Executive Vice President, UPM

Finnish

RaflatacFinnish

Vice President, Nucle-ar Services, Fortum Power and Heat Oy

6,207 (A share)Finnish

President and CEO, Teleste CorporationFinnish

General Counsel and M&A, Posti Group Oyj

5,607 (A share)FinnishProgram Director - AI Renewal, Futurice Oy

In accordance with the recommendation 10, all Board members are independent of the company and of significant shareholders of the company.

Shareholding Dec 31, 2020

570,524 (A share) 454,296 (K share) 396,493 (A share)

2,807 (A share)

406 (A share)

1,126 (A share)

2,476 (A share) 985,646 (A share) 551,008 (K share) 1,536,654 (Total)

Attendance in board meetings 2020

Attendance/
Member	number of meetings	Attendance %
Raimo Voipio (Chairman)	16/16	100
Petri Castrén	16/16	100
Antti Jääskeläinen	8/8	100
Petra Lundström	16/16	100
Jukka Rinnevaara	16/16	100
Kaarina Ståhlberg	16/16	100
Tuomas Syrjänen	15/16	94
Pertti Torstila	7/7	100
Ville Voipio	16/16	100
Board committees

The Board of Directors has two permanent committees: Audit Committee and Remuneration and HR Committee. The members and the chairs of the Committees are appointed annually from among the members of the Board of Directors in accordance with the charter of the respective committee.

Audit Committee

The Audit Committee assists the Board of Directors in supervising the company's accounting and asset management, risk management, as well as in organizing internal controls and external and internal audits. The Audit Committee manages its tasks in accordance with the charter approved by the Board of Directors, the Securities Market Association's Finnish Corporate Governance Code, as well as the applicable laws and regulations. The Audit Committee's charter is published as part of the charter of the Board of Directors on the company's website. The Audit Committee reports regularly about its meetings to the Board of Directors.

The Audit Committee comprises at least three members, appointed annually by the Board of Directors from among its members. The members of the committee must be independent of the company, and at least one member must also be independent of significant shareholders of the company. A member of the Audit Committee may not participate in the company's or its group company's daily management. Members of the Audit Committee have sufficient expertise and experience in matters forming part of the Audit Committee's duties and of the mandatory tasks related to audit.

Remuneration and HR Committee

The Remuneration and HR Committee is responsible for preparing human resources matters pertaining to the compensation of the President and CEO as well as top management, evaluation of the performance of the President and CEO and the Management Group, and to remuneration and incentive plans. Remuneration and HR Committee prepares Remuneration Policy for governing bodies and Remuneration Report. Additionally, the Remuneration Committee oversees the performance evaluation and successor planning of top management. The Remuneration and HR Committee's charter is available as part of the charter of the Board of Directors on the company's website. The Remuneration and HR Committee reports regularly about its meetings to the Board of Directors.

The Remuneration and HR Committee comprises at least three members, appointed annually by the Board of Directors from among its members. The majority of the members of the committee must be independent of the company.

Temporary Nomination Committee

In 2020, the Board of Directors appointed a temporary four-member Nomination Committee from among its members to assist in the selection of President and CEO. The Committee was active during January-April 2020, and it reported regularly of its actions to the Board of Directors.

Committee members and their attendance in committee meetings in 2020

Attendance/ number of

Committee Member meetings Attendance %

Audit CommitteeRemunera-tion and HR CommitteeTemporary Nomination Committee

Kaarina Ståhlberg (Chair)

Petri Castrén

Antti Jääskeläinen (as of June 3, 2020)Jukka Rinnevaara (until June 3, 2020)

4/5 5/5

3/3

Ville Voipio

2/2 5/5

Ville Voipio (Chair)Petri Castrén

(until June 3, 2020)

Petra Lundström

Jukka Rinnevaara (as of June 3, 2020)Raimo Voipio (Chair)

6/6

1/1 6/6

5/5

10/10

Jukka Rinnevaara Kaarina Ståhlberg Ville Voipio

10/10 10/10 10/10

80 100

100

100 100

100

100 100

100

100

100 100 100

All members of the Audit Committee as well as the Remuneration and HR Com-mittee are independent of both the company and its significant shareholders. Members of the temporary Nomination Committee were independent of both the company and its significant shareholders.

President and CEO

The Board of Directors appoints the President and CEO. The President and CEO is responsible for the day-to-day management of the company in accordance with the guidelines and instructions given by the Board of Directors and informs the Board of Directors of the development of the company's business and financial situation. The President and CEO is responsible for ensuring that the company's accounting is legally compliant and that its financial affairs have been arranged in a reliable manner. Kjell Forsén was the President and CEO of Vaisala as well as the Chairman of Vaisala Management Group since 2006 until the end of September 2020. He retired at the end of the year. Kai Öistämö started as President and CEO in October 2020. He was born in 1964 and holds a Ph.D. degree in computer science.

Management Group

The President and CEO is the Chairman of the Management Group. In 2020, the Management Group comprised seven members. The Management Group meets at least once a month to assist the President and CEO in developing and implementing the strategy, managing operational business, as well as preparing matters handled by the Board. The Management Group draws up annual operational and financial plans as well as targets related to these plans, monitors the implementation of the plans, and prepares major investments and acquisitions. The President and CEO is responsible for the decisions made by the Management Group. Members of the Management Group are responsible for implementing the decisions in their own areas of responsibility.

Members of the Management Group are the Executive Vice Presidents of both business areas, the Chief Financial Officer, the Executive Vice President of Operations, the Executive Vice President of Human Resources, as well as the Group General Counsel. The General Counsel acts as secretary to the Management Group.

Members of the Management Group Dec 31, 2020

Director	Member since	Born	Education	Nationality	Position at Vaisala	Dec 31, 2020
PhD (Computer
Kai Öistämö	2020	1964	science)	Finnish	President and CEO	-
Mari Heusala	2019	1966	M.Sc. (Econ.)	Finnish	EVP, Human Resources	-
M.Sc.	EVP, Industrial Measurements
Sampsa Lahtinen	2013	1963	(El. Eng.)	Finnish	business area	25,606 (A share)
Kaarina Muurinen	2011	1958	M.Sc. (Econ.)	Finnish	CFO	29,496 (A share)
Vesa Pylvänäinen	2011	1970	M.Sc. (Econ.)	Finnish	EVP, Operations	20,412 (A share)
M.Sc. (Ind. Eng.),	EVP, Weather and Environment
Jarkko Sairanen	2016	1963	MBA (INSEAD)	Finnish	business area	13,176 (A share)
Katriina Vainio	2017	1967	LL.M.	Finnish	EVP, Group General Counsel	13,088 (A share)
Total	101,778 (A share)

Shareholdings include also shares held by the Management Group's controlled organizations.

Shareholding

Vaisala announced on January 1, 2021 that Olli Nastamo, M.Sc. (Engineering), b. 1956, has been appointed Executive Vice President, Operational Excellence as of March 1, 2021. He becomes a member of the Vaisala Management Group and reports to the President and CEO Kai Öistämö. With this appointment, the number of manage-ment group members rises to eight (8).

Controls

Main features of the internal control and risk management systems pertaining to the financial reporting process

Internal control seeks to ensure the company's compliance with applicable laws, regulations, Code of Conduct, and with other recommendations as well as the reliability of financial and operational reporting. Furthermore, internal control seeks to safeguard the assets of the company and to ensure overall effectiveness and efficiency of operations to meet strategic, operational, and financial targets. Internal control practices are aligned with the risk management process. The goal of risk management is to support strategy and achievement of targets by anticipating and reacting to potential business threats and opportunities.

Vaisala's operating model of internal control and risk management related to financial reporting aims to provide sufficient assurance regarding the reliability of financial reporting and that the financial statements have been prepared in accordance with the applicable laws and regulations, accepted accounting principles (IFRS), and other requirements for listed companies. The principal components of internal control are control environment, risk assessment, control activities, communications, and monitoring.

Control environment

The Board of Directors has the overall responsibility for the internal control of financial reporting. The Board of Directors has established a written charter that clarifies its responsibilities and regulates the internal distribution of work of the Board of Directors and its committees. The Board of Directors has appointed the Audit Committee whose task is to ensure that established principles for financial reporting, risk manage-ment, and internal control are followed by and to enable appropriate external audit. The President and CEO is responsible for organizing an effective control environment and ongoing work on internal control as regards financial reporting. The internal audit reports all relevant issues to the Audit Committee and the President and CEO.

Internal audit focuses on developing and enhancing controls related to financial reporting by proactively and consistently assessing internal control environment and by monitoring the effectiveness of the control

design. Most important internal steering instruments for financial reporting comprise the Code of Conduct, Approval Policy, Treasury Policy, Credit Policy, Disclosure Policy, accounting policies, and other reporting instructions.

Risk assessment

Risk assessment as regards financial reporting aims to identify and systematically evaluate most significant threats at the levels of Vaisala, reporting segments, functions, and processes. As a result of risk assessment, the company defines control targets through which it seeks to ensure that the fundamental requirements placed on financial reporting are fulfilled. Information on the development of essential risk areas as well as reactions to the risks are communicated regularly to the Audit Committee.

Control activities

The President and CEO is operationally responsible for internal controls. Internal control related to financial activities as well as to control of the business and the management has been integrated into Vaisala's business processes. The company has defined and documented significant internal control activities related to its financial statements reporting process as part of business processes. Approval mechanisms, access rights, segregation of duties, authorizations, verifications, reconciliations, and follow-up of financial reporting are essential internal activities.

All business units have their own defined controller function whose representatives participate in planning and evaluating the unit's performance. They ensure that monthly and quarterly financial reporting follows the company's policies and instructions and that all financial reporting is delivered on time. The management follows up the achievement of targets through monthly management reporting routines. The Chief Financial Officer regularly reports the results of the internal control work and the efficiency of the control activities to the Audit Committee.

Communications

Vaisala seeks to ensure that the internal and external communication of the company is open, transparent, accurate, and timely. The Disclosure

Policy defines how and when information should be given and by whom it is given. It also defines the accuracy and comprehensiveness of the information in order to fulfill the communication obligations. Code of Conduct, Approval Policy, Treasury Policy, Credit Policy, accounting policies, and reporting instructions as well as Disclosure Policy and Insider Policy are available on the company's intranet.

Monitoring

The Board of Directors, the Audit Committee, the President and CEO, and internal audit monitor the effectiveness of internal control related to financial reporting. The monitoring includes follow-up of monthly financial reports, review of the rolling forecasts and plans, as well as reports from internal audit and auditors. Internal audit assesses the effectiveness of operations and adequacy of risk management and reports the risks and development areas related to the internal control processes. Internal audit compiles an annual audit plan and reports the status of the plan and findings regularly to the Audit Committee and the Management Group. Furthermore, the Chief Financial Officer, the General Counsel, internal audit, and auditor coordinate audit planning and monitoring regularly.

General development measures in internal control and risk management in 2020

In 2020, internal audit focused on a renewed sourcing and procurement process, the integration process of acquired companies, access management process, and certain follow-up audits, such as GDPR compliance and sales process. A sourcing and procurement audit resulted in recommendations in process improvement and efficiency. Other audits provided input to continual improvement of processes and internal controls.

Harmonization of the control environment in businesses recently acquired by Vaisala has been a priority of internal controls during several years. In 2020, Finance and Control created a Control Catalog describing the most significant risk-based internal controls to ensure completeness, timeliness, and reliability of financial reporting and to prevent fraud.

Related party transactions

Vaisala Board of Directors has defined principles for monitoring and assessing related party transactions as well as keeps a record of related parties. The Board of Directors resolves on all related party transactions that are not made in the ordinary course of business and implemented under arms-length terms.

On top of its affiliates, related parties of Vaisala are Vaisala Board members, Vaisala Management Group (VMG) members including President and CEO, as well as their spouses, partners, and children and legal entities, where a Member of Board or a VMG member has control. Board of Directors has approved guidelines that stipulate approval process and reporting concerning related party transactions. In accordance with the guidelines, Finance and Control as well as Legal follow related party transactions as part of regular reporting and control procedures. Board of Directors will resolve on all related party transactions that are not made in the ordinary course of business and implemented under arms-length terms.

Vaisala reports related party transactions in a note to financial statements. Vaisala has currently no related party transactions which would be material and in conflict with the ordinary course of business and not implemented under arms-length terms.

Auditing and auditor's fees

According to the Articles of Association, the company has one auditor, who must be a public accountant or an audit firm authorized by the Finland Chamber of Commerce. If an audit firm is not chosen to perform the auditing, a deputy auditor must be elected as well. Auditor's term of office covers the current fiscal year and expires at the close of the following Annual General Meeting. Annual General Meeting elects the auditor and decides on the compensation paid to them.

The Annual General Meeting held on June 3, 2020 re-elected Deloitte Oy, audit firm, as the Auditor for a term of one year. APA Reeta Virolainen has acted as the auditor with the principal responsibility as of June 3, 2020. APA Merja Itäniemi acted as the auditor with the principal responsibility of the company during March 26, 2014-June 3, 2020.

Auditor's fees

EUR 1,000

Audit

Tax advice Statements Other fees Total

Insiders

Vaisala maintains project- or event-specific insider lists when needed. 30-day closed window applies to the managers defined by the company before publishing Interim Reports, Half Year Financial Report, Financial Statement Release, and Financial Statements. Closed window ends on the day following the publication day. Closed window also applies to the persons engaged in preparation of those reports. The managers subject to transaction notification obligations comprise the Board of Directors, the President and CEO, as well as members of the Management Group. The company's legal department is responsible for insider management, training, creation, and maintenance of project-and event-specific insider lists as well as monitoring of the same.

The President and CEO, Chief Financial Officer, and/or the General Counsel, two together, can decide, based on an evaluation of the conditions set out in the Market Abuse Regulation being met, to delay publication of insider information. When the company makes the decision on delay of disclosure, a project- or event-based insider list regarding the inside information will be established. Persons, to whom project- or event-specific inside information is disclosed, are entered into the project- or event-specific insider list.