Following a general trend in Europe to legislate on social responsibility, the Transparency Act came into force in Norway on July 1, 2022. The Act aims to promote business respect for fundamental human rights and working conditions. decent work in relation to the production of goods and the provision of services. The law also aims to ensure that the public has access to information on how companies deal with negative impacts on fundamental human rights and decent working conditions.
The Transparency Act applies to all “large companies” that are resident in Norway and offer goods and services in Norway or abroad. The law also applies to large foreign companies that offer goods and services in Norway and are taxable according to Norwegian domestic law. According to Article 3(a) of the Transparency Law, the term “large company” refers to companies which fall under Article 1-5 of the Accounting Law or which, at the date of the financial statements, exceed the threshold of two of the following three conditions:
1. turnover of NOK 70 million;
2. balance sheet total of NOK 35 million; and
3. an average workforce over the year of 50 full-time equivalents.
Parent companies are considered larger companies if the conditions are met for the parent company and the subsidiaries taken together.
The law applies regardless of the sector of activity, which means that most Norwegian shipping companies will be subject to the law. Companies covered by the law have three obligations:
1. A duty of due diligence;
2. an obligation to report due diligence; and
3. a duty to inform.
Obligation to exercise, report and inform on due diligence
A company must carry out due diligence in accordance with the OECD Guidelines for Multinational Enterprises. This includes the following:
1. Integration of responsible business conduct into policies and management systems;
2. Identification and assessment of actual and potential adverse impact on fundamental human rights and decent working conditions that the company has caused or contributed to, or which is directly linked to the company’s operations, products or services through supply chain or business partners;
3. Implementation of appropriate measures to stop, prevent or mitigate negative impacts;
4. Monitoring of the implementation and results of the measures;
5. Communication with relevant stakeholders and rights holders regarding how adverse impacts are being addressed; and
6. Providing or cooperating with reparations and compensation where necessary.
Due diligence should be carried out regularly and proportionate to the size of the business, the nature of the business, the context of its operations, and the severity and likelihood of adverse impact on the fundamental rights of people and decent working conditions.
Companies publish a report on their due diligence each year by June 30 on the companies’ webpage. The account should, among other things, include information regarding actual adverse impacts and significant risks of adverse impacts that the company has identified as part of its due diligence, as well as information regarding the measures that the company has put in place. implementing or planning to implement to end actual adverse impacts or mitigate significant risks of adverse impact, and the results or expected results of those actions. The first reporting year will be 2023.
It should also be noted that anyone has the right to request information from a company about how it is dealing with actual and potential negative impacts. The company must respond adequately and understandably to these questions within three weeks.
Risk areas of the shipping industry
Sustainability initiatives in the shipping industry have often focused on environmental issues, but the focus is now increasingly on human rights and decent working conditions. There is significant potential for negative impact on human rights and decent working conditions throughout the lifetime of a vessel. Norwegian shipowners must take this into account when complying with the obligation to exercise, report and provide information on due diligence in accordance with the Norwegian Transparency Act.
Here are some examples of situations that could pose a threat to fundamental human rights and decent working conditions at different stages of a ship’s life cycle:
• Design, planning and ordering: Shipyards and suppliers with lower than average costs present the risk of poor working conditions for employees and may also lack regulatory compliance.
• Shipbuilding: Shipbuilding poses a risk of accidents and injuries in shipyards, especially if safety standards are not a priority. Short lead times from buyers could also increase the risk of below-average labor standards. If temporary and contract workers are required to pay recruitment fees, the risk of debt bondage and forced labor increases accordingly.
• Operation of a ship: For economic reasons, the control of the conditions of the managing and recruiting party may be lacking. Recruitment fees are often applied to migrant workers, exposing them to debt bondage and forced labour.
• Demolition and recycling: Shipbreaking is, in general, a high risk industry in terms of accidents, especially when carried out in countries where the regulatory framework and law enforcement are weak. Shipbreaking in these countries greatly increases the risk of inhuman working conditions and exploitation. (Note that ship recycling is already subject to a complex regulatory framework for Norwegian-flagged ships, as described in a recent Gard Insight article.)
As the list above highlights, several high-risk activities in the international shipping industry will require shipowners to thoroughly assess their supply chains and trading partners to adhere to the new Transparency Act.
What should shipowners focus on in the future?
Due to the long, complex and highly international supply chains within the shipping industry, Norwegian shipowners will face extensive exercise in carrying out their due diligence in accordance with the Transparency Act. If a company covered by the law has not yet started its due diligence, these must be started as soon as possible to comply with the law, but also to be able to respond to any requests for information and report on due diligence by June 30, 2023. An important first step in this work is to embed responsible business conduct into policies and management systems. The tone coming from management will lay the foundation for risk assessments and mitigation measures that are part of the due diligence.
While Norwegian companies may view the Transparency Act as a competitive disadvantage in an international market, it should be noted that the Norwegian Transparency Act is an indication of a general trend in Europe. It should also be noted that similar regulations such as the Transparency Act are currently being implemented in different European jurisdictions. Similar regulation will potentially also be implemented in the EU, with the Commission having adopted on 23 February 2022 a proposal for a directive on corporate sustainability due diligence. Thus, one of the benefits of the Transparency Act is that it gives a head start to entities that are already actively and diligently working on human rights and fundamental working conditions. The establishment by Norwegian shipowners of effective and sufficient internal routines for the control of supply chains and business partners in accordance with the Transparency Act will be beneficial for the transition to similar and more extensive legislation in the future.
Origin: Gard, https://www.gard.no/web/articles?documentId=34192133