How Brazilian Subsidiaries should care about the Norwegian Transparency Act

Following ESG European framework and in alignment with the OECD Due Diligence Guide for Responsible Business and the United Nations Guiding Principles on Business and Human Rights (“UNGP”), the Transparency Act become enforced in Norway on July 1st, 2022.

Around 9,000 Norwegian entities shall be required to comply with the Transparency Act and demonstrate their social sustainability. Even though the relevant compliance is directed to such companies, it may encompass the information on their activities in Brazil, as well as those carried out by their Brazilian subsidiaries. So, how should Brazilian companies care?

As per the Transparency Act, larger enterprises that are resident in Norway and that offer goods and services in or outside Norway, as well as larger foreign enterprises that offer goods and services in Norway, are required to safeguard employees throughout the supply chain on:

? Fundamental human rights,

? Health, safety and environment in the workplace, and

? Decent living wage.

Larger enterprises are those that exceed the threshold in at least two of the three conditions: (i) sales revenues of NOK 70 million; (ii) balance sheet total of NOK 35 million; and (iii) average number of employees of 50 fulltime equivalent in the financial year. These conditions shall be considered by the parent companies and the subsidiaries as a whole.

Among other requirements, these enterprises will be required to carry out due diligence throughout their supply chain to assure respect for fundamental human rights and decent working conditions for individuals employed by them, by their group companies and suppliers.

The companies are expected not only to be aware and comply with the UNGP and OECD Guidelines, but also have a duty to identify the actual or potential negative impact and to act accordingly.

This due diligence assessment must be performed on a regular basis, following a risk-based approach.

Thus, Brazilian subsidiaries and/or Brazilian suppliers of Norwegian large enterprises may also be under the due diligence scope and will be required to provide information on their policy, systems, and routines to meet the requirements of the Transparency Act.

Let us highlight that compliance will be carried out by the Norwegian entities following the international framework.

Brazilian legislation does not have similar due diligence rules on social sustainability. Although Brazilian Government enacted the Decree 9,571/2018 with national guidance on corporation and human rights protections, they are of voluntary compliance.

A more robust guidance on the matter, including the due diligence requirement, is being discussed in the Brazilian Congress through the Bill of Law 572/2022.

First reporting deadline is scheduled for June 2023. In the beginning, the Norwegian authorities are mainly focusing on providing guidance and supervising enterprises; but lack of compliance upon order and/or repeated violations may expose the companies to penalties, which can be discretionally set depending on the nature and relevance of the infringement. Companies, however, should also consider their reputational risk with the lack of compliance.