A closer look at Norway’s ESG reporting and due diligence requirements
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A closer look at Norway’s ESG reporting and due diligence requirements

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Malin Tønseth and Frode A Berntsen of Simonsen Vogt Wiig look at impact for businesses in Norway as ESG implementation and transparency becomes subject to increased attention

From soft law to hard law

Over the last couple of years, there has been an increasing focus on environmental, social and governance (ESG) compliance among stakeholders in the Norwegian market. The topic has risen high on the agenda of the Norwegian authorities as well as larger businesses, investors and financial institutions. While formal ESG-reporting and due diligence requirements have so far been voluntary for most companies in Norway, there is now a clear shift from soft law to hard law.

Increased use of regulations by authorities, and increased expectations by civil society, are introduced with respect to sustainability. As a result, new standards and requirements are increasingly being introduced or attuned. While the current regime – to a large extent – only legally subjects listed companies to ESG-reporting in their annual report, there appears to be a shift in the focus, moving from voluntarily to formal reporting of ESG data.

Forward-looking companies increasingly recognise the importance of communicating ESG implementation, compliance monitoring and reporting. For such companies, these measures are seen to underpin sustainable and responsible business criteria as an integrated part of their strategy and corporate governance framework.

The terms ‘ESG’ and ‘sustainability’ are often used interchangeably, especially when it comes to benchmarking and disclosing data. Sustainability is an umbrella term for many ‘green concepts’ and corporate responsibility, while ESG has become the preferred term for investors and the capital markets. The industry may have started with sustainability efforts, but it has evolved to include ESG practices, performance, reporting and relevance to capital opportunities. ESG data also helps identify risk-adjusted returns. Emphasis on all three pillars has aided the shift in how companies measure and disclose their performance.

Current legal regime: ESG reporting requirements

Norway introduced legislation presenting social reporting requirements in 2013 through the introduction of section 3-3 of the Norwegian Accounting Act. However, transitional rules implied that reporting the original provision only became effective as of the financial year 2018. The Norwegian rules were introduced in anticipation of the Non-Financial Reporting Directive 2014/95 (NFRD).

“with the introduction of the Sustainable Finance Act, the requirements for assessing and demonstrating sustainability compliance will be even clearer”

As in the EU, the Norwegian Accounting Act applies to ‘large enterprises’, although the definitions are somewhat different. In Norway, ‘large enterprises’ are defined to include Norwegian public listed companies (Norwegian: Allmennaksjeselskap), various issuers of securities obliged to submit annual accounts and listed in a marketplace, and legal entities otherwise obliged to submit annual accounts pursuant to Norwegian regulations.

The social report may not be submitted later than the annual report. If not included, the annual report must clearly state where the social report is available. In any case, the social report must be available to the general public. In a comment included in the whitepaper regarding the latest amendment, the government expressed that further revision of the social reporting requirement may be necessary to accommodate any changes following the EU revision of the NFRD in 2021.

What is to come: update to ESG reporting requirements

In particular, the increased need for more accurate reporting related to climate-related issues, such as climate risk and carbon neutrality, is a key reason why the EU – and Norway – are now tightening up ESG reporting requirements. Currently, Norwegian requirements for reporting on climate-related conditions are comparable to the current requirements in the EU. However, it can be tricky for investors to compare the companies’ possible climate risk – a topic ever more investors are concerned about compared to a few years ago. With new and expanded requirements for sustainability and climate risk reporting, the expectation with regard to environmental reporting requirements may change dramatically for many companies.

Regulation (EU) 2019/2088 on Sustainable Finance Disclosure (SFDR) and the related Regulation (EU) 2020/852 (EU Taxonomy) classify various environmentally sustainable economic activities. Implementation in Norwegian law will take place once incorporated into the European Economic Area (EEA) Agreement. By prioritising early implementation, the Norwegian Ministry of Finance signals the importance it lays on both regulations. To this end, the Ministry circulated for public consultation a proposal for a new law on sustainability disclosure requirements even before the inclusion of the mentioned Regulations in the EEA agreement.

On June 4 2021, the Norwegian government submitted a legislative proposal for the Sustainable Finance Act to Parliament that will imply implementation of the SFDR and EU Taxonomy. Pursuant to Article 7(a) of the EEA Agreement, Norway is obliged to implement all EEA-relevant regulations ‘as such’ in national law. This implies that the Norwegian government is not permitted to reproduce, rewrite or divide provisions as drafted in EU regulations. As a result, both the SFDR and EU Taxonomy will be implemented unchanged in form and content by incorporation directly into Norwegian law.

Additionally, effective July 1 2021, section 3-3 of the Norwegian Accounting Act will be slightly modified. In addition to the key ESG factors; human rights, employee rights, social conditions, external environment and combatting of corruption, the factors gender and non-discrimination have been added. Furthermore, the intention of the amendment is to align the Norwegian provision further with the reporting requirements as expressed in NFRD Articles 19(a) and 29(a).

The requirements for the publication of information on how investments and activities contribute to sustainable development applies first and foremost to actors in the financial sector. However, financial market players that intend to promote sustainable financial products are required to obtain relevant information from companies in which they invest. This imposition is expected to indirectly lead to more stringent requirements for reporting for a wider range of companies than what directly follows from the scope of the new ESG regulations. The interaction between financial investors and those invested in, demonstrates the close connection between the information to be provided under the two new regulations, and reporting requirements for many companies, not directly affected, going forward.

The purpose of the new reporting requirements is to ensure that stakeholders receive sufficient and relevant information, and that the information is more detailed, comparable and not least quantified. The new regulations on sustainability reporting will make it easier for investors to, among others, benchmark their investments and make well-informed decisions in relation to investment opportunities.

In context of also social and governance issues, the Norwegian parliament has recently passed a new Transparency Act that regulates enterprise transparency and work regarding basic human rights and decent working conditions. This Act also applies only to larger business based out of Norway or with another stronger link to the country, such as being subject to Norwegian taxation. In addition to referring to the definition in the Accounting Act for ‘larger companies’, other criteria regarding turnover, the balance value or number of employees may trigger the applicability of the Act.

The effective date of the Transparency Act is not yet clear however in short, once effective, it will impose reporting requirements linked to the OECD guidelines for multinational enterprises (last version from 2011), including use of risk-based due diligence which report shall be made available to the public.

In sum, by introduction of both the new Sustainable Finance Act and the Transparency Act as well as other ESG legislative initiatives in Norway, future reporting requirements have been legally formalised and strengthened. Consequently, financial institutions as well as other businesses operating in Norway should prepare for more comprehensive and detailed reporting requirements on sustainability and climate risk, as well as social and governance issues.

Due diligence requirements and exposure in case of non-compliance

For some it is not always clear where a more traditional legal due diligence ends and the ESG diligence starts or vice versa. Where a traditional legal due diligence seeks to lay out the ramification of a business’ legal arrangements and compliance with general legal requirements, an ESG due diligence is also aimed at actual implementation and practice based on sustainability goals. Anyone in the need of an ESG due diligence must decide on what is appropriate benchmarking, or the scoping of the ESG due diligence review. Even less than for legal due diligences, it does not suffice to find a ‘standard’ ESG due diligence request list and expect that the output will be fit for the objective of such review.

ESG has risen high on the agenda of many private equity companies, investors, and financial institutions. Following the completion of a transaction, the acquiring company often take implementation measures to ensure compliance with important ESG goals.

A typical example is the inclusion of references to International Labour Organisation Convention articles and the UN Convention on the Rights of the Child, as part of the acquired company’s general purchase terms and conditions. The aim typically being to impose the obligation on suppliers to respect the ban of child labour. This is in itself an important sustainability goal, however, the importance of such a reference will vary much from one jurisdiction to another, or from one type of business to another.

For Norwegian investors and stakeholders, such an inclusion of ban of child labour will have little or no relevance if the acquired company mainly operates in Norway in all aspects of its business. The relevance of this provision obviously varies depending on type of business. While trading in clothing with purchases from Asia implies a key risk related to child labour, this will have no or little relevance related to banking services provided to Norwegian customers. The scoping must therefore add business sector and knowledge of different countries and jurisdictions when deciding on what the review should cover. The scoping will be different for business trading in produced food from Europe, versus business trading in crops such as cocoa and coffee from developing countries.

“the Norwegian parliament has recently passed a new Transparency Act that regulates enterprise transparency and work regarding basic human rights and decent working conditions”

The methodology of an ESG due diligence review requires a wider approach than relying mainly on legal documents such as in a legal due diligence. Key elements may include review of implementing documents such as manuals and handbooks, implementing of awareness as for instance expressed in training programmes and review of compliance monitoring activities towards external or internal stakeholders. Often interviews of selected company staff representing various staff categories is a good way to identify competence in expressed ESG policies.

To a lesser extent, such reviews allow for interviews of external stakeholders, but if important enough, this may also be required and in some cases use of technical experts for site visits of stakeholders is required. This is typically the case for production facilities in the supply chain when based in the third world, but also closer to Norway and even in Norway.

Review of open source material, mainly online, through creative searches often point to issues in need of further follow-up. As indicated, in order for an ESG due diligence report to be suitable for purpose, assessments must be linked to a scope typically operationalised into agreed benchmarks for various issues.

How to prepare for tomorrow’s legal regime

For many companies, ESG implementation and transparency will be subject to increased attention going forward. Investors increasingly consider ESG issues as part of efforts to mitigate investment risks.

With the introduction of the Sustainable Finance Act, the requirements for assessing and demonstrating sustainability compliance will be even clearer. All businesses that are dependent on trust by its partners, customers, authorities and investors should therefore take the following steps:

  • Firstly, the business should build an internal team to create a reporting framework that includes ESG issues, targets and initiatives, performance metrics as well as internal and external reporting standards;

  • Secondly, mapping of key stakeholders and legislative requirements, as well as highest risks (exposure and likelihood) is crucial. Collaboration with ESG experts able to assist with mapping ESG requirements against actual performance is often needed in this phase;

  • Further, the business should ensure to designate resources and create insight to meet reporting needs that comply with stakeholders requirements such as industry standards and often standards set out by international organisations (UN and OECD in particular) and non-profit organisations; and

  • Additionally, an element of this work should be to create an effective communication strategy to showcase the business’ ESG management framework for external and internal stakeholders. This should be combined with the reporting of ESG compliance to stakeholders and the public, including the establishment of a clear link with the overall business strategy.

Finally, and equally important, feedback from stakeholders based on the above actions and understanding of emerging sustainability issues affecting the business will enable continued improvement of ESG compliance.

Click here to read all the chapters from IFLR's ESG Europe Report 2021


Malin Tønseth


Simonsen Vogt Wiig

T: +47 470 25 589

E: mto@svw.no

Malin Tønseth is a partner at Simonsen Vogt Wiig, who holds more than 20 years of legal and compliance experience.

Malin heads the ESG and corporate compliance team at the firm. She specialises in compliance and risk management relating to ESG and sustainability, as well as other core corporate compliance issues like anti-corruption, anti-money laundering, sanctions, corporate investigations, governmental interactions and corporate criminal liability. She provides practical and hands-on advice and is often engaged by companies, investors, and financial institutions in connection with compliance assessments, due diligence and audits on business partners, and with issues arising from M&A.

Malin is a graduate of Aarhus University and the University of Copenhagen, and also holds a LLM from the University of Oslo. Among other role, she previously worked as an in-house legal counsel with Norsk Hydro, a leading industrial company committed to a sustainable future.


Frode A Berntsen


Simonsen Vogt Wiig

T: +47 934 90 786

E: fab@svw.no

Frode A Berntsen is a partner at Simonsen Vogt Wiig, with extensive experience in petroleum law, compliance and sanctions. His strong regulatory basis makes him particularly suited for M&A assignments for sectors subject to extensive regulation.

Frode has been involved in various company investigations, including uncovering of corruption allegations and more commonly blending and blurring of economic interests by stakeholders in different legal entities, which otherwise appear unrelated. He has repeatedly demonstrated ability to use open sources to uncover information of relevance in due diligence processes relevant for traditional legal review, but even more in relation to ESG reviews. His international work relates to advice to governments on regulation of the upstream and midstream petroleum sector, including policy advice.

Frode is a graduate of Aix-Marseille University and the University of Oslo.

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