This article is provided by an external Norwegian firm Arntzen de Besche Advokatfirma AS.
Norway has implemented the Transparency Act (the “Act“), coming into force on 1 July 2022, which obligates larger enterprises to comply with fundamental human rights and decent working conditions for employees throughout their supply chain. The Act marks a clear move towards transparency in the supply chain in Norway, which has also been seen in the UK with the implementation of the Modern Slavery Act and also the issuance of a Proposed Directive on Corporate Sustainability Due Diligence by the European Commission to tackle human rights and environmental impacts across global value chains (the “Proposed Directive“).
The Act, which implements parts of the OECD Guidelines for Multinational Enterprises and The United Nations Guiding Principles on Business and Human Rights, will have a focus on the following key requirements:
- a duty to carry out due diligence to identify the actual or potential negative impact on fundamental human rights and working conditions in the supply chain and to act accordingly;
- a duty to make an annual statement describing the method and findings of the due diligence; and
- an obligation to respond to inquiries from stakeholders (inter alia investors, consumers, business partners and competitors). Any request must be answered within three weeks (or in some cases two months).
The Act applies to larger enterprises that are resident in Norway and larger foreign enterprises that offer goods and services in Norway and are liable to tax in Norway pursuant to internal Norwegian legislation. Larger enterprises are defined as enterprises that are exceeding the threshold for two of the following three conditions:
- sales revenues: NOK 70 million;
- balance sheet total: NOK 35 million; and
- average number of employees in the financial year: 50 full-time equivalent.
A parent company is considered to be a larger enterprise if the above-mentioned conditions are met for the parent company and subsidiaries as a whole.
As per the criteria, around 8,800 companies are thus obliged to perform and document their assessments of their supply chains to ensure compliance with fundamental human rights and decent working conditions.
It is worth noting some of the main differences between the Act and the Proposed Directive, such as:
- the threshold for application under the Proposed Directive is significantly higher than under the Act, thus many companies subject to the Act will not be subject to the Proposed Directive;
- the Proposed Directive focuses on negative impacts on human rights and environmental impact, whilst the Act does not relate to environmental impact; and
- the Act has more extensive transparency requirements than the Proposed Directive in the sense that any person has the right to information from an enterprise upon request.
The Act will help enterprises evaluate their actions and monitor how relevant stakeholder interests are affected by their business activities. Thorough preparations may also improve an enterprise’s reputation and investor relations, by making the enterprise more capable of responding to inquiries from stakeholders. The market in general stimulates compliance with social sustainability.
Sanctions for non-compliance, for example a prohibition or an order, may be imposed by governing bodies such as the Consumer Authority. In the initial period after the Act has entered into force, the Consumer Authority will mainly focus on providing guidance and supervising enterprises. However, if an enterprise does not comply with an order or a prohibition or have repeated violations, an infringement penalty or enforcement penalty may be imposed. The size of the penalty is discretionally set by the Consumer Authority, depending on the severity, scope and effects of the infringement.
Zohal Safi (Arntzen de Besche) participated in this alert.