One of the largest reserve of money available for SRI is the Norwegian Government Pension Fund it manages around 543 Billion USD as per 2010. The fund is also known as the Petroleum Fund and is a big pile of money that the Norwegians can use in times of trouble and/or when the oil runs dry. Basically there is money to ensure that the Norwegians experience a smooth economic development rather than the amok economies of the Middle East.
The fund has a strategy that the fund has used is multifaceted and includes:
- International collaboration and contribution to the development of best practice.
- Targeted Investment programs.
- Research and Investigation
- Active Ownership
- Exclusion of Companies
If you remember my previous blog post on SRI strategies you will notice that these are the same or closely linked to the ones described.
In order to keep investments on the “straight and narrow” so to speak the fund has established a Council of Ethics that oversees the actions and nature of the portfolio companies. This is all well and fine and is a sound strategy to follow for any investment company. In short there is a sound investment philosophy that uses a variety of strategies and there is a organization to back it up. So what the problem….
Well, this statement from a NGO working on issues related to Burma “there is a high likelihood that the Fund is contributing to grave unethical actions in Burma through its holdings in the Fund.”
The NGO is called Earth Rights International and it has made a report supported by field observation supporting that the companies that is part of the Norwegian fund is directly or indirectly causing gross Human Rights violations in Burma. So even though the fund have a system for finding and dealing with issues like this there seem to be loop holes in the screening process.
The NGO recommends that the Council of Ethics apply the following to their screening and organizational processes.
• Continue to take an active interest in the ethics of the Fund’s holdings in companies operating in Burma; uphold the integrity of the Ethical Guidelines and abide by established procedures regarding the Fund’s holdings in the 15 companies named in this report.
• Apply the strict standard of exclusion for companies involved in onshore pipeline construction in Burma.
• Expand the strict standard of exclusion for companies involved in onshore pipeline construction in Burma to a wider range of extractive industry activities, including offshore oil and gas project development, large-scale minerals mining, and hydroelectric dam construction.
• Appropriately weigh the unethical nature of the Fund’s holdings in companies that provide unusually large financial support to particularly repressive regimes such as that in Burma
So is the Norwegian Oil Fund now one of the bad guys? Well not necessarily. It all depends on the response and how it reacts to the findings. There are a number of strategies that they can apply but if they want to be viewed upon as ethical also in the future they need to think carefully. So I have come up with a few examples…
Strategy 1: Denial or Attach the accuser approach. “These violations never happened and the information from Burma is at best fragmented so Earth watch must have made some of it up themselves.” . This might work if you were pretty sure that the country you were dealing with had some form of ethics. But as we are talking about a military dictatorship with a long record of Human Rights violations it is more likely that it is true at least in essence. They might be wrong on some of the minor details but all in all the picture will be the same. Companies are exploiting the lack of basic Human Rights in Burma.
Strategy 2: Reminder, Apology and Thanks “We have a well established system for dealing with these kind of challenges and we would like to remind the public that we have a very large investment portfolio and there are bound to be mistakes from time to time. We would like to thank Earth watch international to bringing this to our attention.” Best known as “rolling over” and take the hits now. In most cases this will be the best strategy if one wants to issue to go away as fast as possible. However, one will of cause also have to do something about the problem that was highlighted.
Strategy 3: Excuse. “Even thou we have an elaborate system and the best of intentions a mistake has happened and we will do our best to remedy the issues that have been put before us”. Well this strategy will properly work the first time but if the fund gets in trouble in China, Belarus, Venezuela or another country it will have to come up with a much better answer.
Strategy 4: Ignore. “Who?” Just ignore the media and elected officials if you do not say anything you can’t be quoted as being doing anything wrong, can you? Many companies have been using this strategy with huge success until about the mid nineties. Companies like Wall-mart, A.P. Møller-Maersk and all the major oil producers used to stonewall the media if something nasty came up on the radar. After a few major scandals and falling share prices most of these companies have changed their mind and have opted for a more proactive response. For the Norwegian oil fund this strategy is not an option for one it is a public owned fund and political controlled by people who wants reelection. Second, it has already recognized their responsibility to be ethical through their Ethics council.
Well nobody said it was easy to be a sustainable business and cases like these shows how much complexity one have to deal with and still there can be problems and issues that you have overlooked. The main thing is to have a well designed plan on how to deal with issues and problems, and subsequently deploy that strategy when it is called for.
If you were wondering what companies the Norwegian Fund has invested in I have compiled the list here together with the listed portfolio net value and the country of the company headquarters.
Total S.A. France $2,639,516,440.43
Chevron Corp. U.S. $908,458,831.26
POSCO South Korea $244,529,195.58
CNOOC China $168,762,053.54
Transocean Ltd. Switzerland $167,951,391.91
PetroChina Co. Ltd. China $90,245,610.86
Kunlun Energy Co. Ltd. (formerly CNPC Hong Kong Ltd.) China $58,194,915.34
GAIL India Ltd. India $47,226,310.68
JX Holdings, Inc. (formerly Nippon Oil Corp.) 14 Japan $45,636,490.85
The Petroleum Authority of Thailand (PTT) Thailand $38,565,728.42
The PTT Exploration & Production PCL (PTTEP) Thailand $33,173,944.98
Hyundai Heavy Industries Co., Ltd. South Korea $11,550,938.19
Essar Oil Ltd. India $9,880,367.35
Daewoo International Corp. South Korea $2,592,482.21
Korea Gas Corp. South Korea $1,316,941.57