The legislation will also have an indirect impact on small and medium sized businesses, which are not themselves directly covered by the legislation.
The purpose of the Act
The Transparency Act has as its overreaching goal to require businesses to assess if there is a risk of violations, or actual violations, of basic human rights and a lack of decent working conditions in their company.
The legislation requires that larger enterprises publish an annual report that documents how the company has assessed all aspects of its business, including its entire supply chain, in accordance with the values promoted by the law. Furthermore, there is a requirement that the assessments that have been done are checked and updated continuously.
Who does the Transparency Act apply to?
The Transparency Act has direct effect on "larger enterprises". This is covered by Section 1-5 of the Act, and goes for any company that fulfill two of the following three conditions:
- Sales revenue of NOK 70 million or more on the balance sheet date
- Balance sheet total NOK 35 million or more on the balance sheet date
- Average number of employees in the financial year: 50 full-time equivalents
The Transparency Act requires the companies that are directly affected to carry out a due diligence assessment of their operations. This includes the company's own products and services and will also include their supply chain and business partners. This means that the larger enterprises covered by the Act must carry out investigations of how their subcontractors and partners relate to basic human rights and decent working conditions. It will typically be the business partners themselves who are asked to supply this information, even if they are not considered to be a larger enterprise according to the Transparency Act.
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What obligations follow from the Transparency Act?
In short, the Transparency Act requires the enterprises in question to
- Carry out a due diligence assessment in accordance with the OECD's guidelines for a responsible working life
- Account for the assessments that have been made to the public
- Disclose information to anyone who requests it, under certain conditions
The due diligence assessment must be carried out in six stages. Note that this overview is a rough simplification of the steps.
- Accountability according to the Act must be anchored in the company's guidelines and management systems.
- Actual and potential negative consequences for basic human rights and for decent working conditions must be mapped. This applies to the company's own operations, as well as to operations with its business partners.
- Measures to stop and prevent the negative consequences that have been mapped according to point 2 must be implemented.
- The measures must then be monitored and followed up continuously.
- The measures and assessments must be made public.
- If actual negative consequences are discovered, this must be restored or replaced.
The scope of the assessment is based on a principle of proportionality, which means that the content can vary based on the nature and scope of the business. The assessment must be carried out regularly, and a report must be published no later than the 30th of June each year, with the first reporting deadline being in 2023.
The obligation to provide information comes into effect as early as July 1st 2022, and anyone can now request information on how a larger enterprises relates to the rules that follow from the Transparency Act.
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Consequences of not being compliant
The Norwegian Consumer Authority will supervise businesses' obligations under the Transparency Act, and in the event of a breach, the Norwegian Consumer Authority can impose fees, prohibitions and injunctions.
In addition, there is a great risk of suffering a loss of reputation or of losing assignments and negotiations as a result of breaking the law. The possibilities of entering into future partnerships or obtaining financing for investment projects could also be at risk.
The Transparency Act is still young, and there are therefore no clear standards and templates for how a due diligence assessment under the Act can best be carried out. Therefore, we come up with some recommendations on how your business can prepare.
- Consider which values and guidelines exist in the business as of today. Do these stand up in light of the new law, or do changes need to be made at a higher level?
- Prepare an action plan to map which guidelines are relevant, and how these are to be implemented.
- Make an overall risk analysis. Map typical risk elements for your business, and make sure to document and anchor the guidelines you design in this regard.
- Create an overview of supply chains and collaboration partners. Communicate to them what requirements your business will make in order to be in accordance with the Transparency Act and consider whether this should be contractually regulated with each individual.
- Consider whether your business has the necessary expertise to report under the Transparency Act, or process claims from larger businesses that request documentation. Here, there will often be a need to bring in external assistance.
Do you want an assessment of whether the Transparency Act applies directly to your enterprise, or do you need assistance to implement the new regulations? Get in touch with us, and we will be happy to have a non-binding conversation about how we can best assist.
You are welcome to contact us if you have any questions.