Compliance | Towards mandatory due diligence on human and labour rights in Norway
Summary and purpose of the new Transparency Act
The purpose of the law is to promote companies’ respect for fundamental human rights and decent working conditions connected with the production of goods and services. The law shall ensure transparency about supply chains, requires companies to carry out due diligence assessments and gives the public access to information. The Transparency Act is based on United Nations Guiding Principles on Business and Human Rights (UNGPs) and OECD Guidelines for Multinational Enterprises (OECD Guidelines). In short, the law imposes three substantive duties:
Duty to perform regular human and labour rights due diligence:
The Act refers to the UNGPs and OECD Guidelines, e.g. a duty for the company to anchor accountability in the company’s guidelines, identify actual and potential human rights impacts, to communicate with relevant stakeholders and to act to cease, prevent or reduce negative consequences. In addition, the company shall provide remedy and compensation to affected parties. The due diligence assessments shall cover a company’s activities, supply chains, and other business partners relevant to the delivery of its products and services and it should be proportional to the business size and nature of activities. The assessments are expected to be carried out regularly, with a risk-based approach.
Duty to publicly account for risks and due diligence efforts:
The Transparency Act imposes an obligation to publish an annual report on the due diligence assessments. The purpose of the report is to ensure public access to information about the company’s due diligence efforts, internal governance and compliance processes, identified impacts, actions initiated to address risks on fundamental human and labour rights, and the results of such actions. The board of directors and the managing director are required to sign the report in accordance with Accounting Act § 3-5. In addition, the report shall be published on the company’s website. According to the Transparency Act, the report shall be updated and published by 30 June each year and otherwise in the event of significant changes to the company’s risk assessments.
Duty to provide information about human and labour rights issues upon requests:
The duty to provide information is in line with the principle of transparency in the UNGPs and OECD Guidelines. The company must provide the information to anyone who requests it – whether it is general information or specifically related to a product or service that the company offers. The information will, among other things, make it possible for investors, contracting parties and consumers to make informed choices. We note that the information obligation does not cover information about the place of production. The company has, as a main rule, three weeks to respond to information requests. However, the obligation to provide information is not absolute – the companies could have a right to reject requests for information after a specific assessment. This exception could be relevant where the information requested is subject to a duty of confidentiality or can be considered as business or trade secrets.
Compliance with these new obligations will be supervised by the Norwegian Consumer Agency who will be responsible for providing guidance and enforcing the Transparency Act. The right of enforcement entails, among other things, the right to impose fines on companies.
Companies within the scope of the new legislation
The law applies to larger companies domiciled in Norway, offering goods and services in or outside Norway. The Act also applies to larger foreign companies that provide goods and services in Norway, which are taxable in Norway. The definition of “larger companies” will generally include companies that are regarded as large companies under the Accounting Act § 1-5 (public limited companies and listed companies) or companies exceeding two of the following thresholds on closing day:
- Sales revenues > NOK 70 million
- Balance Sheet > NOK 35 million
- Average number of employees > 50 full-time
Parent companies will be regarded as larger companies if these conditions are met for parent and subsidiary companies seen as a unit. According to an impact assessment carried out by Oslo Economics and KPMG, it is estimated that the scope of the Act will cover 8830 companies.
Inspiration from international guidelines and principles
The UNGPs and OECD Guidelines set in essence the same requirements for companies. However, the OECD Guidelines go further than the UNGPs. In addition to the human rights chapter, the guidelines also contain recommendations on other areas such as employment and industrial relations, environment, anti-corruption, consumer interests, science and technology, competition and taxation. In contrast to the Transparency Act, the UNGPs and OECD Guidelines apply to all companies.
The Norwegian government has stated that it will evaluate the Transparency Act after it has been in force for a period. Among other things, it will be considered whether the law should also cover smaller companies in its scope and include environmental impact and possibly other areas in the OECD Guidelines.
International trend towards mandatory due diligence in supply chains
On 10 March 2021, the European Parliament passed a legislative initiative report setting out recommendations to the European Commission on corporate due diligence and corporate accountability, including a draft directive. The proposal introduces a mandatory corporate due diligence obligation to identify, prevent, mitigate and account for human rights violations and negative environmental impacts in supply chains. The proposal is currently being reviewed by the European Commission and a legislative proposal shall be presented to the European Parliament in summer 2021. If successful, the directive is expected to come into force late 2022 or early 2023.
In addition, the EU taxonomy (EU Regulation 2020/852), expected to be implemented in Norway through a new law on information on sustainability, sets requirements for minimum safeguards which, similar to the Transparency Act, are also based on the UNGPs and OECD Guidelines. In order for economic activities to be able to qualify as environmentally sustainable (Taxonomy-aligned), they will need to be performed in accordance with these principles and guidelines.
Other countries, such as France, the United Kingdom, the Netherlands, Germany, Switzerland, Finland, Australia and the USA, have also adopted regulations related to due diligence assessments in the supply chain or started legislative processes related to this.
An effective compliance programme is key in being able to meet the increasing regulatory requirements in the field of ESG. In BAHR, we regularly assist our clients with establishing, assessing and further developing their compliance programmes. Feel free to contact us for an informal conversation on this topic.