Title: Does Divestment Work The Case of the Norwegian Government Pension Fund Driving Development: Business
1Does Divestment Work? The Case of the Norwegian
Government Pension Fund Driving Development
Business as a Force for Good? Global Compact
Network Nordic Countries, NHO May 18, 2009
Andreas FøllesdalNorwegian Centre for Human
RightsUniversity of Oslohttp//folk.uio.no/andr
easf
2Own background
- Professor Director of Research, Norwegian
Centre for Human Rights, University of Oslo - Member of the Norwegian Pension Funds Council on
Ethics - PhD Harvard University - Philosophy, with
supplementary studies in International Human
Rights Law, International Political Economy,
Regime Theory - Research on International justice, European
Union, human rights, CSR..
3Overview
- 1. About the Norwegian Government Pension Fund
and its Council on Ethics - 2. A case of Exclusion Rio Tinto
- 3. Does Divestment work? Effects
- 4. Patterns and Future Trends (AF)
41. About the Norwegian Government Pension Fund
- A Sovereign Wealth Fund
- One of the largest single-owned funds in the
world. - December 31 2008 Approx 2 275 billion
(milliarder) NOK - Is only invested abroad
- small ownership shares in over 7000 individual
companies - currently 50 pct. equities and 40 pct. fixed
income. - Ethical constraints on investments
5Two ethical obligations of the Fund
- Norwegian Parliament 2003-2004
- Future generations should derive benefit from the
petroleum wealth - gt achieve a sound return in the long term
- The fund should not violate the basic interests
of others as a means to greater profit - gt avoid contributing to violations of
fundamental ethical norms
6A three-track strategy, division of labor
- A. Exercise of ownership rights (Norges Bank)
- to safeguard long-term financial interests, and
- pursue the UNs Global Compact and OECD
Guidelines for Corporate Governance - Ministry of Finance, on advise from Council on
Ethics - B. Negative screening
- gt Exclude companies from the investment
universe that produce weapons whose normal may
violate fundamental humanitarian principles - C. Case by case exclusion of companies
- gt where there is an unacceptable risk of
complicity in gross or systematic breaches of
certain ethical norms
7C) Case by case exclusion
- To avoid an unacceptable risk of being morally
complicit in future - Serious or systematic human rights violations,
such as murder, torture, deprivation of liberty,
forced labour, the worst forms of child labour
and other forms of child exploitation - Grave breeches of individual rights in situations
of war or conflict - Severe environmental degradation
- Gross corruption
- Other particularly serious violations of
fundamental ethical norms -
8Case by case exclusion
Members of the Council
Chair Gro Nystuen, Humanitarian Law, Assoc Prof,
Norwegian Centre for Human Rights. Anne Lill
Gade, Product Safety Manager, Jotun, MSc
Freshwater Ecology, Chair Environmental Policy at
Federation of Norwegian Process
Industries. Bjørn Østbø, Director Corporate
Finance at First Securities Managing Director of
First's Bergen Office. Ola Mestad, Professor,
intl trade and contract law, oil and gas
law. Andreas Føllesdal, Professor, political
Philosophy, Director of Research, Norwegian
Centre for Human Rights
Negative screening of weapons that violate
fundamental humanitarian principles
- To avoid an unacceptable risk of
- being morally complicit in future
- Serious or systematic human rights violations,
- Grave breeches of individual rights in situations
of war or conflict - Severe environmental degradation
- Gross corruption
- Other particularly serious violations of
fundamental ethical norms
9The Procedure
- The Council decides whether to consider case (
60/year) - Suggestions from NGOs, media, Ministry of
Finance, or on Councils own initiative,
supplemented by monitoring by external firm - Information gathering, fact checks, site visits
- Draft recommendation
- - sent to the company for comments and correction
- Final recommendation sent to the Ministry
- Political discussion among Ministers
- Decision by the Ministry of Finance to sell
- Norges Bank sells the stock within 2 months
- Publication of reasoned commendation
www.etikkradet.no - Excluded companies reconsidered after interval
102. Two casesCase 1 Complicity in the human
rights violations of subcontractors Wal- Mart
- To the Minister of Finance
- November 15, 2005
- Divestment from Wal-Mart Stores Inc because there
is reasons to fear complicity in serious or
systematic violations of human rights standards
perpetrated by the supply chain, including
hazardous child labour, semi-forced labour,
hazardous conditions of work.
11- There are numerous reports of child labour,
serious violations of working hour regulations,
wages below the local minimum, healthhazardous
working conditions, unreasonable punishment,
prohibition of unionisation and extensive use of
a production system that fosters working
conditions bordering on forced labour, and of
employees being locked into production premises
etc. in Wal-Marts supply chain. - All of the above examples represent
violations of internationally recognised
standards for labour rights and human rights.
(18) including the prohibition of forced labour.
12Complicity In the companys interest
- In the view of the Council, the type of violation
focused on in this recommendation in Wal-Marts
business operations has been undertaken with the
intention of increasing the companys profits. - The Council considers that even though all
companies aims at maximising their profits, it is
ethically unacceptable to do so by committing, or
tacitly accepting, serious and systematic
violations of ethical norms. (21)
132 Case Environmental degradation - Rio Tinto
- Exclusion recommended February 15, 2008
- At Grasberg mine in Indonesia, Freeport mines
copper using a natural river system for tailings
disposal. Moreover, there is a great risk that
acid rock drainage from the companys waste rock
and tailings dumps will cause lasting ground and
water contamination. - The Council found that continued ownership in
Freeport would imply an unacceptable risk of the
Fund contributing to severe environmental damage.
- Rio Tintos response confirms the companys
investments and role in the Grasberg mine, but
disputes the Councils assessment that the mining
operation causes severe environmental damage.
14- In its reply to the Council Freeport claimed to
comply with all national environmental
regulations. - In this context the Council found it relevant to
point out that the environmental standards
required by Indonesian authorities fall
significantly short of current rules in
Freeports as well as Rio Tintos home countries,
where riverine disposal is prohibited. - The Council placed great importance on the fact
that riverine disposal is internationally
considered an unacceptable discharge method for
mine waste, due to the environmental damage it
provokes. The World Bank no longer finances
projects which make use of riverine tailings
disposal. Neither does The International Finance
Corporation accept this method. . - On these grounds, the Council judged Freeports
practice as clearly in breach of accepted
international norms. The Council is of the
opinion that Freeport through this conduct is
taking advantage of the low environmental
standards and the lenient law enforcement in the
country where it operates.
153. Does Divestment work? Effects
- On future Norwegian generations
- benefit from the oil wealth while respecting the
vital interests of others at some costs - increased transaction costs, probably reduced
yield? - On companies
- Share prices show small dip, corrected within a
week - Shaming?
- On victims of human rights violations,
environmental degradation - Short term little?
- Though possibly
- if shaming works
- if risk of exclusion boosts impact of ownership
activity - Longer term Might contribute to standard setting
and procedures for shareholder responsibility, to
reduce the incentives for competition at the cost
of fundamental norms, human rights etc. - Other ethical and green funds copy the
Norwegian Pension Fund - WHY and HOW might standard setting etc matter?
- Eg in building a better human rights regime?
16Indirect impact 1) On excluded companies
- Some companies, such as Wal-Mart, spend scarce
resources to find out how to be dis-divested. - Why?
17Indirect impact.. 2) Vedanta
- Norway dumps Vedanta from oil fund Reuters, OSLO
- NORWAY has dropped British mining and metals
group Vedanta Resources from its 350 billion oil
fund at the recommendation of the funds ethics
council, which blamed it for environmental damage
and human rights violations, the finance ministry
said. - Vedanta Aluminium Ltd. sought to use 723.343 ha
of land (including 58.943 ha of reserve forest
land) in Lanjigarh Tehsil of Kalahandi District
for setting up Alumina Refinery. They were
stopped, and ultimately went to the Supreme Court
of India - The Supreme Court of India, New Delhi, November
23, 2007 rejected Vedantas application.
Referring to the recommendation of the Council on
Ethics, the Supreme Court stated that - . We do not wish to express any opinion on the
correctness of the said Report. However, we
cannot take the risk of handing over an important
asset into the hands of the company unless we are
satisfied about its credibility
18Indirect impact 3) Added clout to Active
Ownership
- The risk of future exclusion with the shaming
it entails adds to the impact when the Fund
seeks to engage with management to change the
problematic practices
19Indirect impact 4) Other Funds
- Several other Ethical and Green Funds
automatically follow the recommendations of the
Norwegian Pension Fund
204. Patterns and Future Trends (AF)..
- Toward more effective human rights and
environmental regimes for corporations - Why?
- Economic globalisation the mobility of
capital - Political globalisation - Governments have
chosen to have less de facto control over
tariffs, monetary policies, and taxation levels. - Opportunities and power - and therefore tasks
and responsibilities - has shifted from
governments toward corporations - Governments and NGOs say
- Corporations can no longer avoid taking
responsibility when governments are unable to - especially since governments weakness is
partly due to the increased power of corporations
214. Patterns and Trends Toward more effective
regimes?
- Conditions
- Public standards and decisions.
- Predictable and credible threats of divestment
- Requires publicity and carefully reasoned
decisions. - Substantive norms that enjoy wide spread
acceptance - The operationalizations and quasi-judicial
judgments must be convincing to the general
public and relevant stakeholders. - New division of labour
- What roles of NGOs, businesses, governments,
investors? - Tendencies
- Networks of ethical investors
- Consolidation of norms and their
operationalization - Beyond CSR statements On-the-ground
factfinding - Information sharing
- Coalitions of investors, consumers, early mover
corporations
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