- Following an overall trend in Europe of legislating social responsibility, the Transparency Act entered into force in Norway on 1 July 2022.
- The Act aims to promote enterprises’ respect for fundamental human rights and decent working conditions.
- The Act also aims to ensure the public has access to information regarding how enterprises address adverse impacts on fundamental human rights.
Maintaining fundamental human rights and decent working conditions for all involved in a ship during its lifespan can pose challenges. Among the factors that make it challenging are the shipping industry’s long supply chains, the number of business partners etc. A new act recently came into force in Norway applicable to larger enterprises. The Act demands transparent due diligence to be carried out with regard to fundamental human rights and decent working conditions.
Highlights of the Act
The Transparency Act applies to all “larger enterprises” that are resident in Norway and offer goods and services in or outside Norway. The Act also applies to larger foreign enterprises that offer goods and services in Norway and are taxable. The term “larger enterprise” means enterprises that are covered by Section 1-5 of the Accounting Act or that on the date of financial statements exceed the threshold of two of the following three conditions:
- Sales revenue of NOK 70 million.
- Balance sheet total of NOK 35 million.
- An average number of employees in the financial year of 50 full-time equivalents.
The enterprises covered by the Act have three obligations:
- A duty to carry out due diligence.
- A duty to account for due diligence.
- A duty to provide information.
Diligence at its core
An enterprise shall carry out due diligence following the OECD Guidelines for Multinational Enterprises. This includes the following:
- Embedment of responsible business conduct and policies .
- Identification and assessment of the actual and potential adverse impact on fundamental human rights and decent working conditions.
- Implementation of suitable measures to cease or mitigate adverse impacts.
- Tracking of the implementation.
- Communication with affected stakeholders and rights-holders.
- Provision of or co-operation in remediation and compensation.
The due diligence shall be carried out regularly and in proportion to the size of the enterprise, the nature of the enterprise. The enterprises shall publish an account of their due diligence yearly by 30 June on the enterprises’ webpage. The account shall, inter alia, include information regarding actual adverse impacts and significant risks of adverse impacts and the results or expected results of these measures. Notably, people also have the right to request information from an enterprise and the enterprise must respond adequately and comprehensively.
Perils of the shipping industry
The sustainability initiatives in the shipping industry have often focused on environmental issues, but there is now an increasing focus on human rights. Norwegian shipowners must consider this when adhering to the duty to carry out in consonance with the Transparency Act. Some instances that pose threat to fundamental human rights are:
- Designing, planning and ordering: Shipyards and suppliers with lower than average costs pose the risk of poor working conditions for employees.
- Shipbuilding: The building of ships poses a risk of accidents and injuries in shipyards, especially if safety standards are not prioritized.
- Operation of a ship: Due to economic reasons, the monitoring of conditions of the managing and recruiting party could be lacking.
- Breaking and recycling: Ship breaking is, in general, a high-risk industry accident-wise.
It shows that several higher risk activities of the international shipping industry will force shipowners to thoroughly evaluate their supply chains.
The Way Forward
Due to the long, complex and highly international supply chains within the shipping industry, Norwegian shipowners will face an extensive exercise in performing their due diligence. An important first step in this work is to embed responsible business conduct into the policies and management systems. While Norwegian enterprises may consider the Transparency Act a competitive disadvantage in an international market, it should be noted that the Norwegian Transparency Act is an indication of an overall trend in Europe. Similar statutes are currently being implemented across different European jurisdictions. The Norwegian shipowners’ establishment of effective and sufficient internal routines for control of supply chains and business partners according to the Transparency Act will be of benefit for the transition into similar and more extensive legislation to come.
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Source: Gard
