The Transparency Act (the “Act”) comes into force in Norway 1 July 2022. All Norwegian enterprises and foreign enterprises doing business in Norway will now become obliged to not only run their business ESG-compliant, but also to assess their own compliance, in order to secure human rights and labour rights within its entire supply chain. The Act also requires that the assessments are documented and published. In addition, the Act provides every one of us the right to require access to information of the companies’ assessments related to specific goods and services. Thus, a violation of the act may not only entail fines, but potential reputational damage and loss of competitiveness and business.
There is an increasing legislative focus on social sustainability also in the rest of the EU. Germany and the Netherlands have adopted similar legislation, coming into force 1 January 2023. The EU is currently proposing the Corporate Sustainability Due Diligence Directive (CSDDD), which is expected to be adopted in approximately two years from now. Furthermore, for British companies, the Modern Slavery Act is also relevant, since it regulates many of the same issues as the Act.
In addition, the Act should be read in relation to other relevant legislation, in particular the EU Taxonomy and CSRD. How these regulations will look in detail remains to be seen, since they are still under preparation. The OECD Guidelines for Multinational Enterprises and the United Nations Guiding Principles on Business and Human Rights constitute the foundation of the methodology and principles of the regulations and give guidance to what is coming.
Thus, companies that have not initiated preparatory actions, should start preparing as soon as possible. The Act points out what EU companies should expect from CSDDD. By familiarizing with these guidelines and principles, and understanding the purpose of them, one will be able to foresee what requirements enterprises will meet going forward.
Purpose of the Act
The Act is based on a Norwegian initiative and a report from an ethics and information committee. The report showed a culture of low wages, pressure of overtime working, lack of security and lack of respect for the work of trade unions in large parts of the world’s production of goods. To remedy these negative consequences related to human rights and labour rights, the Norwegian government proposed more awareness and transparency related to these issues in the business world. The Act is a result of this proposal.
Due Diligence - risk-based assessments and transparency
In short, the Act requires that companies perform risk-based assessments of how human rights and labour rights are being affected both within their own business and within their supply chain. The assessments consist of six steps:
- anchor accountability in the company’s internal guidelines,
- identify and assess actual and potential negative impacts on human rights and labour rights that the company has either caused or contributed to, or that are directly related to the company’s business, products or services via its supply chain or other business partners,
- implement appropriate measures to stop, prevent or limit negative impacts based on the company’s priorities and assessments performed in accordance with no. 2,
- follow-up on implementation and results of the measures activated in accordance with no. 3,
- communicate with relevant parties about how negative consequences are being handled, cf. no. 3 and 4 above, and
- ensure recovery and/or damages, either by own means or in cooperation with other parties, where this is required.
As the different steps show, a company is obliged to both perform and to document the assessments. The obligations relate to the company’s entire supply chain, which entails that the assessments do not only target its own suppliers, but also sub-suppliers and so on. The scope of the assessments is decided specifically from time to time, based on the company’s connection to the risk and its severity. A statement of the assessments shall be published at least once a year, and whenever the company faces substantial changes in its risk-based assessments.
A company is also obliged to respond to potential requests for access to information about all sides of their assessments at all times. A company can meet both general requests and requests related to specific goods or services.
The aim is to encourage respect for and prevent negative impact on human rights and labour rights, by engaging business life through these requirements. All parties of the business world, from consumers to investors, shall be given the opportunity to make purchase and investment decisions knowing how it will affect human rights and labour rights.
The Act’s applicability
The Act applies to companies that are domiciled in Norway and offer goods and services in Norway or abroad. The obligations under the Act are assigned to large and medium-sized companies. However, smaller companies may also be affected by the purpose of the Act, as a part of the supply chain, by being asked to disclose information about how human rights and labour rights are being maintained in their business. Large companies are defined as public or listed companies, and medium-sized companies cover companies that at the end of the financial year exceed two of the following three criteria:
- sales income: NOK 70 million,
- balance sheet total: NOK 35 million,
- on average 50 full-time equivalent employees during the financial year.
The Act also applies to large and medium-sized foreign companies that offer goods and services in Norway, in addition to being liable to pay taxes in Norway. Further, the Act will apply for a Norwegian parent company that together with its subsidiary meet the criteria of the Act’s scope, regardless of whether the subsidiary is Norwegian or not. As stated above, a certain connection to Norway is necessary for a foreign company to be subject to the Act, and it is in this regard irrelevant that the parent company has a Norwegian subsidiary.
What is the practical way to face these requirements?
We advise both Norwegian and other EU companies to act now, both in regard to reputational aspects and to create a best practice in these matters as soon as possible.
The legislation is new, and it is yet unknown how the authorities, the consumers and other buyers will exercise their rights and responsibilities in accordance with it. We recommend companies to initiate the risk-based assessment process by implementing a policy of these matters, either on group level or company level, and identify their supply chain and specific suppliers.
A practical advice on the way is to make use of your own purchasing management system in your contracts with suppliers, in order to make them perform assessments of their own suppliers and give you the right to access and examine these assessments. Another practical starting point is to perform a risk-based identification by classifying by country, industry and type of goods/service.
Jeg heter Jan Egill Wendelboe Aarø, er advokat og partner i Advokatfirmaet PwC. Jeg leder forretningsjuridisk avdeling i PwC i Bergen og jobber med alminnelig forretningsjuss, med et særlig fokus på arbeidsrett, kontraktsrett og selskapsrett.
My name is Jan Egill Wendelboe Aarø and I work as a lawyer and partner in PwC Tax and Legal Services. I manage the business law department at PwC in Bergen, with a particular focus on labor law, contract law and real estate..
Jeg heter Gaute Lunestad og jobber som advokat i PwC, hvor jeg har vært ansatt siden 2017. Jeg er spesialisert innenfor arbeidsrett, skipsarbeidsrett og kontraktsrett, samt regelverket innenfor fiskeri og havbruk. Jeg bistår et bredt spekter av klienter innenfor disse fagområdene, men jobber i hovedsak mot selskaper innenfor sjømatnæringen og sjøfart.
Ta gjerne kontakt dersom du har innspill eller spørsmål.