8 Evaluation of legal instruments

It has been argued that the social responsibility of Norwegian companies operating abroad should be legislated. The underlying rationale is that more and more Norwegian companies are operating in countries and regions where there are serious human rights violations and whose judiciaries, national legislation and democratic institutions are weak and ineffective.

The Norwegian Forum for Environment and Development (ForUM) and Amnesty International Norway, for example, have advocated drawing up binding national guidelines that set minimum social responsibility standards for financial institutions and business enterprises, regardless of where they operate. ForUM also advocates extending corporate management responsibility in practice by making managers personally liable for the consequences of their company’s operations in the case of serious transgressions. They also maintain that companies and financial institutions should have actual legal liability based on Norwegian criminal law, including for acts committed outside Norwegian territory.

The social partners have a different approach. The Confederation of Norwegian Enterprise (NHO), emphasises the importance of international agreements and guidelines for the private sector that are adapted to national legislation. It considers that special Norwegian rules for companies’ international operations would have a limited effect on international developments. In NHO’s opinion, developments can best be influenced on the international level.

The Norwegian Confederation of Trade Unions (LO) argues that national legislation, the social dialogue and the agreements concluded between the social partners are the most important tools that Norwegian businesses can take with them when relocating production or setting up new companies abroad. LO does not, therefore, currently see the need for binding national guidelines for corporate social responsibility.

LO points out that the combination of the legislation, arrangements and certification systems that are already in place is adequate provided that they are complied with. It is of the view that voluntary arrangements, action plans developed by individual companies and good checklists can be useful supplements for Norwegian companies setting up business abroad.

When the Norwegian Limited Liability Companies Act was revised in 2006, a majority in the Standing Committee on Justice urged the Government, in a comment, to evaluate the need for national guidelines for corporate social responsibility abroad and present the results to the Storting (the Norwegian parliament) in the appropriate manner. It is reasonable to interpret this as a signal that the Committee on Justice does not consider company law to be the appropriate place to promote the considerations concerning specific challenges abroad that are dealt with in this report.

In this chapter, we will discuss other national legal instruments in relation to companies’ operations abroad.

8.1 Criminal sanctions

As shown in Chapter 1, corporate social responsibility is neither a legal nor a judicial concept, referring instead to something over and above what companies are legally liable for pursuant to the applicable legislation in the countries in which they operate or are established.

In normal legal language, if standards and norms are legally binding, any violation is unlawful and may be subject to sanctions.

8.1.1 General limitations of international law

Norwegian criminal law is applicable to acts committed on Norwegian territory (the territorial principle). In certain cases, Norwegian law may be applicable outside Norway, if the act has been committed abroad by a Norwegian national or person domiciled in Norway or on behalf of a business enterprise registered in Norway (the nationality principle). According to Chapter 16 of the Norwegian General Civil Penal Code of 2005, serious international crimes committed by non-Norwegian nationals abroad, or crimes targeting the Norwegian state (the protective principle), may also be prosecuted in Norway.

A universality principle without limitations, i.e. a principle whereby all Norwegian criminal legislation would be applicable to acts by all non-Norwegian nationals abroad, would probably be incompatible with international law. In a less general form, however, the individual state may be entitled under international law to determine the extent to which its own criminal legislation is to apply to acts committed by non-nationals abroad. The development of international conventions and treaties that oblige adhering states to criminalise specific acts supports the application of a universality principle with limitations.

8.1.2 The development of international criminal law norms

Criminal law provisions are becoming increasingly harmonised through the adoption of international standards for prohibited acts. Core international labour standards such as those relating to forced labour, child labour, etc., are affected by this, as are economic crimes such as money laundering and corruption. This is relevant to a broader assessment of instruments regulating corporate social responsibility at the international level.

One example is ILO Convention 182 concerning the abolition of the worst forms of child labour. Article 7 of the Convention prescribes penal or other appropriate sanctions to prevent prohibited child labour. Chapter III of the UN Convention against Corruption of 31 October 2003 contains detailed criminalisation obligations. Conventions that harmonise criminal law provisions open for the prosecution of acts committed abroad – either explicitly (as in Article 42 of the UN Convention against Corruption) or implicitly, through international law in general.

A steadily increasing number of international standards contain an element of criminal law harmonisation. This increases companies’ responsibility for respecting these standards, while also paving the way for close cooperation between the authorities of different states on the proscription and combating of prohibited acts.

8.1.3 Norwegian criminal legislation

Norwegian criminal legislation determines whether violations abroad of international norms of this kind may be prosecuted by Norwegian authorities. At present, the vast majority of serious offences committed abroad by persons domiciled in Norway may be prosecuted in Norway. As a general rule, the offence must also be a crime in the country in which it was committed (the double criminality requirement). Most serious offences may, however, be prosecuted in Norway regardless of whether the offence was prohibited in the country in which it was committed. This applies, for example, to offences against personal liberty, life and health (slavery, forced labour, etc.) and economic crime such as corruption.

Once the new General Civil Penal Code of 2005 enters into force, the criminal prosecution in Norway of acts committed abroad will be permitted notwithstanding the requirement of double criminality provided that the acts are specified in the Penal Code (section 5, subsections 2 to 4, lists specific offences that may be subject to a penalty under Norwegian law even if the double criminality requirement has not been met). This will also apply to cases where international law entails an obligation or a right to prosecute such acts (section 6).

As regards other cases in which companies are perceived as not having exercised social responsibility abroad, there are only grounds for criminal prosecution in Norway if the conditions of the Penal Code have been met.

8.1.4 Evaluation

A broad consensus on international legislation to prevent child labour, secure adequate protection of workers, prevent pollution and other environmentally harmful activity and prevent the exploitation of minorities and indigenous population groups are common goals. Today there is a comprehensive set of international standards that regulate these issues, cf. Chapter 7. The standards are largely based on generally accepted values that Norwegian companies should take into account in their activities.

There is substantial disagreement between countries as to the content of the various standards, depending on their level of economic development and cultural and social structure. In some areas, however, the standards have been generally accepted. Anti-corruption legislation in Norway is an example of provisions than have been developed and then implemented as a consequence of international conventions, cf. Chapter 3.2.4.

The revision of the Norwegian Penal Code and the evaluation of its scope has involved a careful weighing up of the various considerations, including the sovereignty of other states, due process protection and the interests of judicial economy, cf. Proposition No. 90 (2003–2004) to the Odelsting, section 13.5.2. Except in cases where there is broad international consensus on the legal protection of a social good, Norwegian prosecution of acts committed by Norwegian companies in another country may be perceived as unwarranted interference in another state’s internal affairs. Ultimately, this could mean that other states may have grounds under international law for taking legal action against Norway.

Even though we might be in favour of higher international standards than those on which there is broad consensus today, we should nevertheless, out of consideration for other states’ sovereignty, be cautious about prosecuting acts committed abroad in Norway. Consideration for due process protection and predictability calls for a certain degree of restraint, particularly in cases where a penal provision is not based on internationally accepted norms. Consideration for efficient international cooperation on the prosecution of crimes linked to several countries indicates that the harmonisation of provisions relating to the scope of national criminal legislation would also be in our interest.

Criminal prosecution of acts committed abroad should only take place in cases where there are international criminalisation obligations, when the act in question is a serious offence under Norwegian law or where it is also a criminal offence under the legislation of the host country (double criminality).

The Government

• considers that the recent increase in the number of global instruments entailing criminalisation obligations paves the way for more effective protection of the most fundamental standards for companies’ international operations;

• does not consider it expedient to propose unilateral Norwegian penal provisions concerning companies’ social responsibility with regard to their operations abroad.

8.2 Civil liability

Under Norwegian law, the basic principle is that a parent company may not be held liable for loss or damage caused by the acts of its subsidiaries. The exception is if the parent company itself has done something that would make it liable for the loss or damage.

In Proposition No. 55 (2005–2006) to the Odelsting, the Ministry of Justice and the Police discussed whether a rule should be introduced to allow limited piercing of the corporate veil in connection with claims for damages against a limited company for environmental damage, but it decided it would not be expedient to propose such rules.

A study conducted for the Ministry points out that shareholders’ limited liability for the commitments of their company is a fundamental principle of general importance to society. It makes it possible to set up businesses involving risk without exposing the participants to personal liability in the event of loss and liability on the part of the company. It is often a precondition for investing capital in a new business and is also important in relation to potential liability for environmental damage. If shareholders were to be held directly liable, claims for compensation for environmental damage would have a greater chance than other claims of piercing the corporate veil. This would be perceived as unreasonable by the company’s other creditors.

The study concluded that the special needs and considerations that apply in this area should, instead, be dealt with by special statutory provisions. The same considerations would also apply to the matter of damages in other situations involving social responsibility.

As a general rule, we cannot exclude the possibility of civil liability under Norwegian law for loss or damage in another country. However, a liability case of this nature would be challenging; the offence would have been committed abroad and most of the witnesses and other forms of evidence would be outside Norway. The fact that evidence would have to be obtained by means of judicial requests to the authorities of the country in question, as well as the fact that the parties might have a right to be present, could prove challenging.

The Government

• will continue to evaluate measures that can help to prevent Norwegian nationals and companies from committing serious environmental crimes outside Norway.

8.3 Reporting on social responsibility

It can be challenging to identify other legal instruments that can promote greater corporate awareness. Instruments other than purely legal ones are therefore likely to be the most important in this context. It is assumed that the best «sanction» in relation to more progressive and targeted standards is public opinion and consumer pressure, combined with measures to raise the awareness of employees and management in the individual companies.

Legal instruments could nonetheless have a function in throwing a public spotlight on corporate operations. An example of this is the obligation to report social and environmental impacts that has been or is being introduced in a number of countries, such as France, the UK, Denmark and Sweden.

8.3.1 Reporting obligation under Norwegian law

Pursuant to Norwegian law, all companies that are required to submit accounts must report on some aspects of their social responsibility, currently limited to the working environment, gender equality and environmental impact. Section 3–3 of the Norwegian Accounting Act requires all such companies to give an account of specific non-financial factors (sustainability reporting) in the Board of Directors’ annual report.

According to the Accounting Act, information must be provided on the working environment, including an overview of measures implemented in this regard. Specific mention must be made of any damage, injuries and accidents. The report must also contain an account of the current status of gender equality in the company, with an overview of implemented or planned measures to promote equality and prevent discrimination that contravenes the Gender Equality Act. The report must also disclose any matters relating to the company’s operations, including input factors and products that could have an appreciable impact on the natural environment. In addition, information must be provided about any environmental impact that results or might result from a company’s activities, and any implemented or planned measures to prevent or reduce negative environmental impact.

8.3.2 The duty to provide information about ethical guidelines

The Government advocates that the current provisions of the Accounting Act requiring companies to report on social responsibility factors be extended to include a duty to provide information on the company’s ethical guidelines. It intends to submit for consultation a bill proposing the introduction of an additional provision requiring the largest companies with an accounting obligation to state which ethical guidelines or standards for social responsibility they follow and what the company has done during the accounting year to follow up its social responsibility. Companies that do not have any guidelines will be obliged to disclose this.

The purpose of incorporating such a provision is to highlight the importance the authorities attach to social responsibility and enhance corporate awareness and follow-up in this area. It should serve as an incentive for companies to make CSR an integral part of their day-to-day operations and corporate governance and risk management regime. It could also help to ensure that shareholders, consumers and society at large are better informed about how companies approach social responsibility issues.

Among other things, an obligation to disclose which ethical guidelines or standards for social responsibility are used by the company and how this responsibility is followed up will lead to greater management awareness of the value of emphasising economic, social and environmental factors in corporate governance. It could also trigger a review of a company’s guidelines and routines, and initiate a continuous assessment of possible new measures to improve practice.

The purpose of the Accounting Act is to help to ensure that as much information as possible is provided to various stakeholders about a company’s financial position, risk exposure, financial performance and other aspects of the business. There is a tendency today to also request non-financial information. Investors and creditors are among the users of such information.

We also note that companies that operate in a socially and environmentally responsible manner can improve their market position and competitiveness both at home and abroad. Better reporting on CSR will help to present a more holistic picture of a company’s operations. Good reporting will also improve transparency and enhance the company’s reputation.

The general trend in the EU seems to be to request companies to disclose which guidelines they use, or to state that they have no guidelines if that is the case, rather than to make detailed legislative provisions.

In Denmark, a statutory reporting obligation has recently been introduced for the 1 100 largest companies and institutional investors. They are now obliged to give an account of their social responsibility policy and how it is implemented in practice. The companies must state which standards, guidelines or principles they follow, and which follow-up systems or procedures they use. They must also give an account of what they have achieved through their social responsibility efforts and their expectations of this work in the years ahead. Companies that do not have a policy in this area must say so. This information must be included in the company’s annual report, which may, where appropriate, refer to information in a separate report or to the company’s website.

The purpose of this legislative provision is to «encourage companies and investors to look actively and constructively at how their core competencies match the global challenges they face». The obligation to inform is intended to motivate companies to take a stand on «the international agenda». However, the way in which it meets the challenges and opportunities of globalisation is up to the company itself.

France has a law (2001) requiring companies to declare how their foreign subsidiaries comply with the ILO core conventions. Listed companies must report on how they address environmental, social and working environment considerations in domestic and foreign operations. Sweden requires state-owned companies to use the reporting template of the Global Reporting Initiative (GRI).

In the UK, the 2006 Companies Act requires the annual reports of quoted companies to include information on environmental matters (including the company’s environmental impact), employees and social and community issues to the extent necessary for an understanding of the development, performance and position of the company’s business. Companies are to include information on any policies relating to these matters and their effectiveness. The «comply or explain» principle is applied.

The Norwegian proposal to extend the duty to provide information is similar to the legislation recently enacted in Denmark. The Government assumes that an information requirement relating to ethical guidelines will generate more relevant information than a requirement relating to factors that are necessary in order to understand a company’s development, performance and position.

In practice, a requirement in line with the British model might exclude much of the most relevant social responsibility information because it would not be deemed necessary for an understanding of the development, performance and position of the company’s business. A requirement linked to ethical guidelines could help to create more awareness in companies of social responsibility in general, while a requirement linked to the significance for the development, performance and position of a company’s business will primarily encourage companies to consider whether environmental or social issues have financial implications for the business. Information that is necessary to understand the development, performance and position of a company’s business will have to be provided in any case pursuant to the general provisions of the Accounting Act.

8.4 Grievance and monitoring mechanisms

The establishment of an ombudsman post for social responsibility, or an independent body for monitoring and advising Norwegian companies, has been proposed in certain quarters. It is argued that this would increase focus on the inadequate practice of social responsibility.

Amnesty International Norway has proposed the establishment of an information and monitoring body or appointing an ombudsman for corporate social responsibility. The Norwegian ForUM for Environment and Development advocates setting up a public advisory service for international business and an index of Norwegian companies’ conduct in the areas of human rights and the environment. In an official report (NOU 2008:14), the Norwegian Policy Coherence Committee recommends the establishment of a national information and monitoring body in the form of an ombudsman for corporate social responsibility that would have right of access to documents that are exempt from public disclosure.

The institution of ombudsman is used in several areas to protect the interests and rights of individuals or groups. Examples in Norway are the Parliamentary Ombudsman for Public Administration, the Equality and Anti-discrimination Ombudsman, and the Consumer Ombudsman. Existing ombudsmen have a clearly defined role in relation to the legislation they are charged with monitoring and they have certain sanctions at their disposal. The appointment of an ombudsman for social responsibility would require dedicated legislation or relevant guidelines.

If the idea is to give an ombudsman for the public sector responsibility for protecting individuals and groups abroad in relation to the activities of Norwegian companies, the concerns described under 8.1 and 8.2 above will apply in relation to enforcing Norwegian legislation or standards. The prosecution of such cases would involve legal and economic complications. If the idea is to set up an advisory body for social responsibility, the main questions will concern resources and organisation.

8.5 Considerations

In the Government’s view, the establishment and implementation of a strong international frame­work would be more expedient than setting up national schemes that would vary from one country to another and give rise to uncertainty for both the business community and society at large. The Government will therefore work to further develop international frameworks for the private sector rather than developing special Norwegian schemes. The Government will also seek to get more countries to adhere to international conventions and implement them in national legislation and practice.

The introduction of special Norwegian legislation and provisions for Norwegian companies’ operations abroad would raise a number of matters of principle and practical problems. Similar problems would arise if Norwegian legislation were to be made applicable to the operations of Norwegian companies abroad. This also raises a number of legal considerations and matters of principle, for example with regard to national legislation in host countries. The fact that many Norwegian companies are engaged in ventures in which local companies or others may have strong ownership interests is also a factor to be considered.

As regards the environment, other countries may be facing different climatic and topographical conditions, which means that Norwegian provisions are not automatically transferable. This white paper therefore discusses several contexts in which Norwegian companies are expected to aim towards best practice in their operations abroad.

In the Government’s view it would be most expedient to consider international grievance and monitoring mechanisms with respect to human rights and the environment. The NCP for the OECD Guidelines plays an important role, and the Government emphasises its significance.