Transparency Act in Norway: Compliance, Due Diligence (Full Guide: 2023)

What is the Transparency Act in Norway?

The Norwegian Parliament enacted the Transparency Act on June 10, 2021. This regulation provides legal requirements that larger companies must abide by. They now have a duty to report on what they’re doing to be compliant and offer decent working conditions and fundamental human rights within the company, supply chains, and through business partners.

Overall, the goal of the Transparency Act is two-fold. Enterprises should have respect for decent working conditions and fundamental human rights. However, it also indicates that trade unions, organizations, journalists, the general public, and consumers have full access to the information.

Though the Transparency Act is only a Norwegian initiative, we are seeing similar at the EU level and in other European countries. You can read the Amending Directive of Corporate Sustainability Due Diligence from the European Parliament here.

We are here to help large enterprises learn what to do to get in front of the Transparency Act requirements. This will help them with due diligence efficiently while everyone is still trying to make sense of the new regulations.

What Must Qualifying Companies Do?

There are three core obligations that the Transparency Act in Norway imposes on qualifying enterprises:

1. Conduct Due Diligence for Human Rights – To do that, enterprises should look to the OECD guidelines relating to multinational companies. These are consistent with the UNGP for business and human rights, but they also correlate to the requirements shown in the EU Due Diligence Directive. The obligation is far-reaching and requires the qualifying company to create or amend policies to include better working conditions and respect human rights. They must also prioritize, identify, and address the adverse impacts, communicate with stakeholders, track results and implementation of the measures, and cooperate with others to remediate any issues.

2. Account for the Enterprise’s Due Diligence – The enterprise should be reporting publicly on those activities, and the information should be on the website or in print. Every company this applies to must publish its first report by June 30, 2023.

3. Respond to Requests for Information from the Public and Others – If someone asks for data about the risks associated with working conditions and human rights inside the organization, it must be provided within 3 weeks.

What Enterprises Must Report Because of the New Transparency Act

The Transparency Act applies to larger entities with headquarters in Norway or that offer services and goods to those outside of or in Norway. However, there’s another stipulation to consider. The Act also applies to foreign large enterprises offering services and goods to those in Norway if they are tax residents in the country.

Many people are confused about what “larger enterprises” mean. The Transparency Act defines it as any enterprise covered by the Accounting Act (Section 1-5) or businesses that meet two of these conditions when receiving their financial statements:

• Average employee numbers within the financial year of 50 FTEs or more
• Balance sheet totals of over MNOK 35
• Sales revenues totaling more than MNOK 70

Group companies are considered one unit when determining whether the enterprise exceeds two of those three thresholds. Therefore, the employees, income, and balance sheet of the parent company and its subsidiaries are included within the calculation if the parent company is in Norway. However, subsidiaries can be registered outside or inside Norway to be part of it.

Enterprise types covered by this legislation aren’t listed within the Transparency Act, except for those listed in the Accounting Act in Section 1-5. However, enterprises required to submit their annual accounts based on the Accounting Act in Section 1-2 is the basis for the subjects found in the Transparency Act.

Therefore, the first step is determining whether that enterprise is part of Section 1-2 of the Accounting Act. Then, it must see if it exceeds two out of the three thresholds listed above.

The Norwegian Transparency Act doesn’t distinguish between the types of products and services covered within. Therefore, they are all covered if other conditions are met.

Enterprises are required to prepare reports with appropriate information compiled during the due diligence assessment. In fact, the Transparency Act has set up minimum requirements for what the report should contain. As long as those are followed, entities have some flexibility regarding formatting and the content within.

Requirements for the Due Diligence Assessment Report

When crafting a due diligence assessment report, it should contain (at the bare minimum) the following information:

• General descriptions of:
  • The company’s area of operation and organization
  • Routines and guidelines for dealing with potential and actual negative consequences for working conditions and human rights
  • How the due diligence assessment was organized
• Specific details about:
  • The negative consequences perceived and the risk of negative effects that could happen. Enterprises must identify these points through the due diligence assessment and list whatever measures they plan to take or have taken to stop them or limit the risk.

The report has to be updated and published each year on June 30 or whenever significant changes are made because of the risk assessments. However, the Transparency Act didn’t come into force until July 1, 2022. Therefore, the first report must be published on June 30, 2023.

Enterprises can publish them on the company website or include them in sustainability and annual reports. The general and board manager must sign the due diligence assessment report. Therefore, this Act should gain more attention from the board of directors and management within companies everywhere.

What’s Duty of Due Diligence Mean?

The three types of diligence are legal, financial and commercial due diligence. Duty of Due Diligence means the legal obligation to be informed, prepared and participate in discussions. Through the Transparency Act, large enterprises must carry out and promote their due diligence for decent working conditions and fundamental human rights.

This legislation is based primarily on the OECD’s guidelines relating to multinational companies and the UNGP Guidelines (Guiding Principles for business and human rights).

In a sense, Norwegian authorities automatically expect enterprises in Norway to comply with and be aware of those guidelines. The expectation means that small companies must now comply with the OECD and UNGP guidelines. Likewise, enterprises covered under the Transparency Act must focus on whatever areas go beyond the traditional scope of the Act, including anti-corruption and environmental matters.

Due diligence assessments must be carried out regularly and feature six steps. Most enterprises already know them and have established control systems to deal with compliance, HSE, anti-money laundering, and anti-corruption laws.

The Six Steps for Due Diligence Assessments

Here are the things larger enterprises should do to assess due diligence:

1. Make sure they’re accountable for management systems and policies.
2. Assess and monitor any negative risks or impacts based on the business partners, supply chains, and the enterprise itself.
3. Prevent, reduce, and stop any negative impacts or risks.
4. Supervise the implementation of new policies and results therein.
5. Communicate with any direct parties and rights holders on how to handle negative impacts.
6. Collaborate on remedies and ensure they’re handled properly when needed.

Proportionality and Risk-based Approach

Due diligence assessments should be performed regularly, be proportionate, and use a risk-based approach.

Let’s break those things down for you:

What’s a Risk-based Approach?

The term “risk-based approach” focuses on the measures the enterprises include in their due diligence assessment. This must correspond with the severity of the negative impact and the probability that it will happen at all. When severity and likelihood are high, the requirements of the enterprise are also higher.

What’s Proportionality Indicate?

Proportionality indicates that the requirements of the due diligence assessment could vary depending on circumstances that relate to the enterprise. These can include the nature and size of the company or the maturity of the market and trade.

What’s “Enterprise Itself” Indicate?

The term “enterprise itself” is considered the legal entity that’s covered by the Act. In corporate groups, it indicates that the parent company includes any activities from the subsidiaries, regardless of where they’re registered. However, the parent company’s duties must be adapted to deal with national legislation, whether those subsidiaries are partly or wholly owned.

What’s the Definition of “Supply Chain?”

A supply chain is a network of the individuals, resources, organizations, technology, and activities involved in selling or creating a product. This includes everything from delivering materials, manufacturing plants, suppliers, delivery to the user, and all the rest.

Therefore, the Transparency Act indicates that whatever suppliers a company works with must also comply with the regulation and implement good working conditions and basic human rights. A business could be held liable if they work with brands that don’t comply.

What’s the Definition of “Business Partner?”

The term “business partner” indicates anyone who delivers services and goods to the enterprise directly but isn’t necessarily part of the supply chain. That can include contractual relationships with the brand, though the person or company doesn’t deliver services and goods that are part of production for the enterprise in question.

Examples include advertising agencies and office equipment suppliers.

Image of Andrea Piacquadio sharing information to the public about human rights risk in the organization.

The Duty to Give Information

While the Transparency Act has the duty to report, it also gives the general public rights to the information about how enterprises handle potential and actual negative consequences that are revealed in the due diligence assessment.

Anyone can submit these requests for information, such as unions, interest organizations, journalists, and consumers. Likewise, the public can ask for data related to specific services or goods offered by the company or get general information.

The information requested must be given to the person who submitted their written request directly by the enterprise. This must happen in a reasonable time frame, which the Transparency Act limits to three weeks or less after getting the initial written request.

Notable Clause in the Transparency Act: Collaboration

There’s a clause within the Transparency Act about collaboration. This means enterprises can work together on their due diligence assessments to avoid work duplication and increase their degree of impact. For example, a company could use another brand’s due diligence assessments to create its version, thereby reducing the workload of identifying similar risks.

Overall, an enterprise can rely on the supply chain’s due diligence assessments, and a subsidiary can depend on the parent company for its documentation and reports. Regardless, the subsidiary or enterprise itself is held responsible for producing the assessment, including ensuring that it’s sufficient and comprehensive enough.

Enterprises can also refer to another company’s report for their due diligence assessment needs. However, one brand’s report must still meet the minimum requirements of the Transparency Act to fulfill its obligation. Therefore, it’s crucial to ensure the other company creates a factual and correct report that follows the rules.

The Supervisory Body Is the Norwegian Consumer Agency

The Transparency Act’s supervisory body is the Norwegian Consumer Agency, but the Market Council is the appeal body for any decision appeals. Therefore, they can review reports from enterprises to determine if they’ve fulfilled their reporting obligations. Everyone is required to give appropriate information so that the Market Council and Consumer Agency can enforce this Act correctly.

Both bodies are there to decide on injunctions, prohibitions, infringement fines, and coercive fines. The sanctions within the Transparency Act can only be imposed for breaching the duty to perform the due diligence assessments or the information and reporting obligations within the Act. Therefore, the bodies can’t use administrative sanctions to react to violations of employee or human rights.

What must Enterprises, including their qualifying Business Partners do to Comply with the Transparency Act?

Qualifying companies and those with direct contractual relationships with them must take practical steps to make sure they’re complying with the Transparency Act and whatever obligations flow down through the supply chain. These include:

• Test Existing Procedures and Policies – Look at current policies about modern slavery and human rights to make sure you’re meeting international standards. Companies that don’t have a human rights policy in place should create one and adopt it now.
• Identify Potential and Actual Human Rights Problems –There are a few steps involved, including:

Assessing and Mapping out Issues within the Supply Chain – Begin with human rights issues between first-tier or direct suppliers. Then, companies can dig deeper to find any problems beyond that until they reach those who extract raw materials for the products.

Identifying Any Human Rights Issues within the Operations –Many companies will have to focus on discrimination, labor rights, risk assessment of workplace accidents, or infringement of allowing freedom of association. However, brands could face other human rights issues that vary based on operating contexts and sectors. For example, enterprises in the hydroelectric sector may deal with indigenous people’s rights and land rights problems. Extractive brands could face issues with a person’s security.

Identifying Any Human Rights Issues with End Use and Disposal of Products/Services –These can vary significantly between sectors and must be considered during the assessment.

1. Prioritize Important Human Rights Issues Requiring Action – This can be done by determining what issues could have a bigger negative impact because of the company’s relationships and activities. They should be dealt with first.
2. Prevent, Cease, and Mitigate –Use practical measures to stop doing those things or prevent them. Then, track their effectiveness over time.
3. Record –Companies must record the processes, systems, and policies, including important issues and how they’re addressed, in a document that can be externally distributed. Maintaining such records allows the company to efficiently discharge the reporting obligation and respond to requests from the public or counterparties. For example, if the company audits suppliers using criteria relating to human rights, it should record and track the following:

• • Number of audits completely in one reporting cycle
  • Criteria used to assess the suppliers
  • Key findings of the audit
  • How to engage with that supplier if it remains non-compliant