What are the implications of the Transparency Act for foreign companies?
The Transparency Act was passed by Parliament on June 9th, 2021, and took effect on July 1st, 2022. The law imposes a comprehensive duty to carry out due diligence assessments for basic human rights and decent working conditions on approximately 8830 Norwegian companies. In addition, the law will indirectly have an impact on a large number of companies that are not directly covered by the law.
In meetings with our clients, we observe a big variation in how well prepared Norwegian companies are for the Transparency Act. Depending on the size and nature of the business, the due diligence assessments can be extensive, and it is therefore recommended that you start work now, if you have not started already.
What is the Transparency Act?
The purpose of the law is to promote companies' respect for basic human rights and decent working conditions in connection with the production of goods and the provision of services. The law will also ensure the public access to information on how companies handle negative consequences for basic human rights and decent working conditions.
The law requires companies to perform due diligence assessments both in relation to their own business as well as supply chains and business partners. Companies are also obliged to account for these due diligence assessments in an annual report, as well as answer information requirements from the general public on the basis of the company's due diligence assessments.
Who is covered by the Transparency Act?
The law applies to larger companies that are domiciled in Norway, and that offer goods and services in or outside Norway. The law also applies to larger foreign companies that offer goods and services in Norway, and which are taxable in Norway according to Norwegian internal legislation.
Larger enterprises means enterprises that are covered by the Accounting Act § 1-5, or which, on the balance sheet date, exceed the limits for two of the following three conditions:
1. sales revenue: NOK 70 million
2. balance sheet total: NOK 35 million
3. average number of employees in the financial year: 50 FTEs
In addition, parent companies are regarded as larger companies if the parent and subsidiary companies meet the above conditions as a unit.
Will smaller businesses be covered by the law?
As larger companies must perform due diligence assessments at their supply chains and business partners and account for this, it is expected that larger companies will have to impose corresponding requirements of due diligence assessments on their suppliers and business partners, as well as requirements ensuring that this is continued down the supply chain. For this reason, it is expected that the Transparency Act will also indirectly have an impact on all smaller companies that supply goods and services to larger companies, and thus very many companies beyond those defined as larger companies will have to comply with the new law.
Consequences and sanctions for breach of obligations
The Norwegian Consumer Agency will supervise that the obligations in the law are complied with, and may impose coercive fines and infringement fines for infringements. However, the Norwegian Consumer Agency has stated that, at least in the early stages, most emphasis will be placed on guidance and dialogue with the businesses covered by the Act, although sanctions may also constitute an important instrument for safeguarding the purpose of the Act.
There is little doubt that the Norwegian Consumer Agency will follow up on companies' compliance with the law. The Norwegian Consumer Agency has established a separate department for the Transparency Act, and has brought in new employees so as to be equipped when the law enters into force. The Agency was also allocated funds already on January 1st, 2022, six months before the law takes effect, so that they will be well prepared and can follow up businesses effectively from July 1st. Codex has participated in a conference where the Consumer Agency shared its thoughts on the new law, and their message is clear: the most important thing is to start, and to show that you take the new obligations seriously.
The commercial consequences of not complying with the requirements of the Transparency Act can also be significant. This applies to both companies that are directly covered by the law, and smaller companies that are part of larger companies' business chain.
If you as a company can not document that you comply with the requirements of the Transparency Act, whether you are covered directly or indirectly, there is a risk that other actors can not or will not cooperate with the company, since they themselves must document that their business chain complies with the law.
In addition, a lack of focus on sustainability can have consequences for the supply of capital. When assessing whether to provide loans or invest in a company, several banks and investors are now also considering how companies perform on sustainability, including both social conditions, society and the environment. Lack of focus on sustainability can lead to more expensive loans, or investors opting out of the business.
Talk to us
We now assist both larger companies that are directly covered by the law, and smaller companies that want to utilize the competitive advantage that sustainable operations can provide. In meetings with our clients, we see a variety of goals the companies have set themselves related to sustainability. Some only want to do enough to comply with the new requirements that follow from the Transparency Act, while others focus on sustainability as a competitive advantage and therefore set themselves even higher goals. We also see that it varies how much the companies want to achieve themselves, and how much they want assistance for. We therefore assist with both competence transfer and implementation of assessments and measures, and tailor a plan together with our clients based on their goals and wishes.
Contact us for a non-binding chat about how your company can prepare for the Transparency Act to take effect.