Large companies selling products and services in Norway have had to make major changes in how they approach supply chain due diligence with the Norwegian Transparency Act which came into force in July 2022 bring. So what exactly are the new obligations and what can companies do to effectively comply with them? The legislation mandates that liable firms be able to account for the human rights and fair labor practices, not only of direct or “Tier 1” suppliers, but of all those indirect vendors and subcontractors who comprise the entirety of the upstream and downstream value chain. This blog summarizes the key provisions of the Act, including an outline of the profile of businesses affected, and highlights how EcoVadis’ ratings and intelligence solutions can help prepare your company to meet and exceed forthcoming regulatory obligations.
Introduction: Norway in Europe’s Evolving Regulatory Context
In the years following the landmark introduction of the UK Modern Slavery Act in 2015, regulators across Europe have grown increasingly assertive in mandating that companies account for the social and environmental conduct of their trading partners. Indeed, supply chain due diligence laws of varying stringency and scope are now operational in France, the Netherlands and Germany, and the European Commission is expected to publish shortly its long-awaited draft proposal for a mandatory, EU-wide regime.
These developments make clear that, in Europe, the era of voluntary, self-regulation in respect of social and environmental due diligence has come to a decisive end. The new Norwegian Transparency Act ("Åpenhetsloven"), adopted formally by the Norwegian parliament in June 2021, is thus the latest addition to an increasingly dense and complex thicket of due diligence regulation spreading across the continent.
However, the Norwegian law is distinguished from, for instance, the recently-introduced German Supply Chain Act, by the fact that it imposes due diligence obligations across all tiers of the supply base. This means that liable firms will need to extend their due diligence to the labor and human rights practices, not only of their direct or “Tier 1” suppliers, but of all those Tier 2, Tier 3 and Tier N suppliers that comprise the entirety of the upstream value chain, where visibility for purchasing companies tends to be lowest. The Norwegian regulation is, therefore, significantly more stringent than many comparable due diligence regimes operational elsewhere in Europe and consequently presents a much greater compliance challenge for reporting companies.
So who will it impact and what obligations does the new law entail?
What Companies Are Affected?
The legislation will apply to all companies registered in Norway, and foreign companies selling in Norway, that meet at least two of the following three criteria:
- At least 50 full-time employees (or equivalent annual man-hours)
An annual turnover of at least NOK 70 million (€6.9 million, or US $7.94 million)
A balance sheet sum of at least NOK 35 million (€3.5 million, or US $3.97 million).
To put these figures into context, the EU’s Non-Financial Reporting Directive (NFRD) applies to companies with more than 500 employees, and while the forthcoming Corporate Sustainability Reporting Directive (CSRD) will reduce that figure to 250, it remains five-times higher than the reporting threshold mandated by the Norwegian Act. Similarly, the due diligence obligations set out under the German Supply Chain Act will apply initially to companies with at least 3,000 employees, a figure that will reduce to 1,000 from January 2024.
It is clear, therefore, that many of the companies covered by the Norwegian Transparency Act will be subject to due diligence and reporting requirements for the first time and are more liable, therefore, to lack the institutional capacity and expertise required to straightforwardly ensure compliance. Indeed, one recent, peer-reviewed study estimates that the law will apply to about 8,830 enterprises.
What Will Liable Businesses Need to Do?
Drawing on OECD guidelines, the Norwegian Transparency Act obliges companies to conduct human rights and “decent working conditions'' due diligence activities on both their internal operations and those of their suppliers. Critically, the legislation also stipulates an expansive definition of “suppliers” as “any party in the chain of suppliers and subcontractors that supplies or produces goods, services or other input factors included in an enterprise's delivery of services or production of goods from the raw material stage to a finished product.” In practice, this means that firms will need to adopt measures to identify potential and actual violations of human rights or decent working conditions in their supply base and implement mechanisms to cease, prevent or mitigate such infringements where they do occur.
Companies will, furthermore, be obliged to transparently report on due diligence processes and findings. This includes publishing, by 30 June each year, an annual account of due diligence practices and findings to an easily accessible location, such as on a company website. Businesses will also be compelled to respond, within a “reasonable” timeframe, to written information requests from members of the public regarding its handling of specific labor or human rights due diligence matters.
The Norwegian Consumer Authority is responsible for overseeing and enforcing the Act. In the event of a violation, the Consumer Authority may issue an order requiring or enjoining compliance, or it may issue a fine.
How EcoVadis Can Help Your Business Prepare
Clearly, the Transparency Act will entail profound consequences for liable companies trading in Norway. But by providing businesses with an accurate and scalable means of gaining transparency into the labor and human rights practices of suppliers across the world, EcoVadis’ ratings and intelligence solutions can effectively support your company in preparing to meet and exceed the requirements stipulated under the Act.
Utilizing a uniquely holistic assessment methodology, distinct in its capacity to account for the correlationality of adverse social and environmental impacts, EcoVadis evaluates sustainability performance across four themes – 1) Environment, 2) Labor and Human Rights 3) Ethics; and 4) Sustainable Procurement – and provides an overall rating that is weighted according to the specificities of a company’s size, location and industry. Crucially, the business practices evaluated under EcoVadis’ Labor and Human Rights theme derive from the same source documents – notably the International Labor Organization (ILO) conventions – as the Norwegian Transparency Act.
The resulting scorecards, therefore, position companies strongly to accurately gauge and report on compliance against the provisions of the Act. And given a number of stakeholders, such as academics and NGOs, are already lobbying the Norwegian government to incorporate environmental considerations into the Transparency law, the data accrued under EcoVadis’ Environment theme can function to “future proof” due diligence capacity against increased regulatory scrutiny going forward, while sparing suppliers the undue burden of completing multiple generic self-assessment surveys.
Furthermore, EcoVadis scorecards provide suppliers with targeted corrective action plans (CAPs), tailored training appropriate to the organization’s maturity on ESG topics (including labor and human rights issues) and a CAP-Monitoring-Service to track performance improvement. This feature thus provides buying companies with a straightforward means of fulfilling their forthcoming obligation to report on and track the implementation of measures intended to address adverse labor or human rights impacts in the supply base.
EcoVadis’ online Dashboards also provide purchasing organizations with critical support in terms of reporting and disclosure. By enabling procurement teams to straightforwardly access supplier performance data and accurately benchmark scores against the rest of the EcoVadis ratings network, the facility provides buyers with critical support in fulfilling the kinds of reporting and disclosure requirements stipulated under the Transparency Act. Furthermore, by aggregating sustainability performance information from over 100,000 public sources, EcoVadis’ 360° Watch function provides companies with a level of transparency into supplier labor and human rights practices that far exceeds a sole reliance on self-assessment mechanisms.
Lastly, by providing companies with an effective means of profiling and mapping the entirety of their supply base for ethical, social and environmental risk, the EcoVadis IQ solution can also support procurement organizations in complying with the Transparency Act. Drawing on intelligence from the world’s largest sustainability performance database, as well as companies’ internal procurement data, this practice of risk mapping is essential to gaining visibility into the activities of suppliers and, consequently, facilitates the effective triaging and organization of due diligence assessment and monitoring activities.
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