The Norwegian government last week proposed a new Act that would require thousands of the country’s largest companies (estimated at more than 8000 in total) to disclose what measures they take to ensure respect for human rights in their value chains. The human rights due diligence standards applied in the proposed law are harmonised with the global standards being applied in other jurisdictions, but the proposal also deploys a unique approach to transparency and regulatory oversight.
Harmonized Corporate Practice
Proposition 150 L (2020-2021 only available in Norwegian) ‘Act on business transparency and work with fundamental human rights and decent work’ – or the Transparency Law for short – is the latest in a series of so-called mandatory due diligence initiatives that have sprung up across a number of jurisdictions in recent years. The proposed Act is based on the work of a government-appointed committee, which consulted with civil society, labour and business, and proposed a draft law in 2019 (full disclosure: the author was a member of that committee). The Norwegian proposal responds to advocacy by civil society and business organisations, including campaigning by Future in Our Hands dating back to the aftermath of the Rana Plaza tragedy.
In common with most such proposals, the Norwegian Act is designed to promote corporate respect for human rights, especially in the complex value chains that characterise our contemporary systems of production and consumption. The proposal faithfully transposes the human rights due diligence (HRDD) approach set forth in the OECD Guidelines for Multinational Enterprises, which was first elaborated in the UN Guiding Principles on Business and Human Rights (UNGPs).
All the key HRDD elements are present: the proposal is concerned with negative impacts by business activity on all rights and freedoms; companies are expected to conduct assessments of potential negative impacts on rights and take action in response to identified risks; companies should track such efforts and cooperate in remedies. The proposal’s definition of ‘fundamental human rights’ includes the conventions on economic, social, cultural, civil and political rights as well as the ILO core conventions. Crucially, the language of the proposed Act does not limit human rights to these instruments and the commentary refers to other instruments as relevant for business, such as conventions relating to the rights of indigenous peoples and children’s rights. In addition, the Act includes decent work, to be understood as workplace health, safety and environment (HSE) and, crucially, a living wage. The impacts of modern slavery are embedded in the Act, based in part of the Committee’s finding that the substance of human rights and decent work enabled companies to respond to the risk of modern slavery in their value chains.
Core Corporate Duties
The Act, if adopted, will create a corporate duty to implement due diligence with respect to human rights and decent work. The practical elements of that duty are linked explicitly to the OECD Guidelines and the risk-based approach common to HRDD globally: due diligence should be an ongoing process, take into consideration the size and nature of the business and the operating context, as well as the salience and likelihood of negative impacts on rights.
An additional requirement is created in the form of a duty to disclose its due diligence practice. The information required in such disclosures includes the following as a minimum (Article 5):
- A general description of due diligence policies and routines for handling risks to human rights and decent work
- Information on actual negative impacts and significant risks of such impacts the company has identified through its due diligence activities
- Information on company measures to cease or prevent actual negative impacts or mitigate significant risks of such impact and the results (or expected results) of such measures
Disclosure should be made easily available on the company web page and should be updated annually or when there are significant changes in the risk picture. For large enterprises, this can be done as part of the CSR reporting required by Norway’s Accounting Act, but the company’s annual report has to make clear where this information can be found. The effect of this is to redefine the content of Norway’s long-standing CSR reporting requirements to bring them into compliance with global human rights norms. The provisions for CSR reporting under Norway’s accounting law are both vague and voluntary (comply or explain) and have proven largely ineffective as a transparency mechanism.
Finally, and most interestingly, the proposal creates a separate requirement that companies respond to public demands for information about their negative impacts and their due diligence. This is the most innovative part of the Norwegian proposal. As a regulatory tactic, this obligation to disclose on demand holds real promise. Rather than leave it up to companies to decide what they will be transparent about, this provision holds the potential to leverage real information about impacts into the public domain and thereby encourage respect for rights.
A Right to Know
The obligation to disclose is the necessary fulfilment of the right of all of us to know what negative impacts companies are having on people and the planet and what those companies are doing to address those impacts. That right is explicitly recognized in the proposed Act as a ‘Right to Information’ (Article 6). The article is based on a similar provision in Norway’s Environmental Information Act of 2003 (updated version in Norwegian only), which empowers people to demand information from companies about the latter’s environmental impacts, including in their supply chains.
The provision in the proposed Act sets out a general ‘right for information from a company about how the company handles actual and potential negative impacts’, including information about specific products or services the company offers. The right is held by all and is manifested in the form of written requests for information to a company. A company is obligated to respond within three weeks or to indicate if longer time is needed, including by explaining why more time is needed.
The proposed Act also sets out the boundaries of this right in practice, in the form of grounds upon which a request for information can be rejected. These may include where the request is not clear enough about what information is being requested, where the request is obviously unreasonable, where the information involved is personal in nature, or where the request involves commercially privileged information (trade secrets). A company must be explicit, in writing, about what grounds it has relied on in rejecting the request for information.
The proposal makes clear that these are practical grounds a company may use to reject a request, and not principled limitations to the right to information about company impacts established by the law. It also makes clear that rejections of information requests can be appealed to Norway’s consumer affairs bodies (the Consumer Authority and the Marketing Council). Where a company is found by the regulator to have failed to disclose there is the possibility of enforcement action, including fines that may be significant in the case of repeated infringements.
A Freedom of Information Act for Corporates?
The proposal would not create a legal duty to respect human rights under Norwegian law. But it does the next best thing. It makes clear that business is expected to respect human rights, in compliance with international standards. It draws on the OECD Guidelines and the UNGPs as the basis for a harmonized approach to due diligence as the standard of compliance. It then embeds that standard in domestic law and uses transparency – including the rights of individuals to know about corporate impacts – to regulate business Activity.
This approach draws on the best traditions of Norwegian regulation, in particular a willingness to create mechanisms that enable organized workers, consumers, media and businesses to activate state regulators to ensure compliance or improve performance in meeting ethical standards. The Norwegian proposal draws on the global movement towards due diligence as a component of corporate responsibility. Yet, it proposes a new twist – a right to information and duty to disclose. This innovative addition is reminiscent of freedom of information acts, (FoIAs) which enable citizens to demand information from their governments. It is fitting that in this age of global capital, we empower people to ask concrete questions about the ethics of corporations that govern so much of our lives.
Ways Forward
There remain significant questions about how the proposal fits into the larger drive for real sustainability, not least through European Union (EU) reforms to corporate governance, which are likely to include some form of mandatory sustainability due diligence. By drawing on the OECD Guidelines, the proposed Act lays the foundation for due diligence regulation in Norway to integrate both human rights and environmental risks. Most importantly, the definitions and commentary in the proposed Act deal with not just the linear supply chains of raw materials, but all business relationships involved in value creation, including the end-of-life of products. This holds the promise of dealing with the full life-cycle of products and services. In that promise there is the potential for due diligence regulation that supports full circularity of production and consumption, as well as rules that bridge the continued fragmentation between the social, environmental and governance standards that define responsible business. This proposal does not do all that, but it does not foreclose it either. As the debates around sustainability due diligence evolve in Europe, and as elections in Norway draw near, there is an opening here that demands attention.