Nor­we­gian fund ex­cludes four firms over en­vi­ron­men­tal dam­age from oil


Nor­way’s gi­gan­tic sov­er­eign wealth fund an­nounced Mon­day it was di­vest­ing from four large Asian com­pa­nies over the en­vi­ron­men­tal dam­age their palm oil ac­tiv­i­ties have on trop­i­cal forests.

The world’s largest public in­vest­ment fund, man­ag­ing 7.15 tril­lion kro­ner ( US$ 872 bil­lion), said its de­ci­sion to ex­clude four groups — in­clud­ing South Korean group Dae­woo In­ter­na­tional — from its port­fo­lio was based on “an as­sess­ment of the risk of se­vere en­vi­ron­men­tal dam­age” from their con­ver­sion of trop­i­cal forests to cul­ti­vate palm oil.

Dae­woo, South Korean steel­maker Posco and Malaysian groups Gent­ing and IJM were tar­geted in the di­vest­ment de­ci­sion by Nor­way’s cen­tral bank, which man­ages the wealth fund that owns around 1.3 per­cent of all stocks on global eq­uity mar­kets, with stakes in about 9,000 com­pa­nies.

The fund man­ages its in­vest­ments ac­cord­ing to strict eth­i­cal guide­lines that have pre­vi­ously led it to ex­clude around 60 com­pa­nies from its hold­ings, in­clud­ing Air­bus, Boe­ing, Safran, Philip Mor­ris and Wal- Mart.

Un­der the guide­lines, it must avoid in­vest­ments in groups ac­cused of se­ri­ous vi­o­la­tions of hu­man rights, child la­bor or se­ri­ous en­vi­ron­men­tal dam­age, as well as man­u­fac­tur­ers of “par- tic­u­larly in­hu­mane” arms and to­bacco firms.

The de­ci­sions by the fund — which draws in­vest­ment money from Nor­way’s huge oil rev­enues, a fact that hasn’t es­caped some de­trac­tors — are fre­quently repli­cated by other in­ter­na­tional in­vestors con­cerned about eth­i­cal per­cep­tions of their hold­ings.

Palm oil — used pri­mar­ily in the cos­met­ics, food, and bio- fuel sec­tors — is a con­tro­ver­sial in­dus­try, with cam­paigns mounted by en­vi­ron­men­tal groups and con­sumers.

Dae­woo fell afoul of the fund’s man­agers for its 85- per­cent stake in an In­done­sian com­pany ac­cused of clear­ing large swathes of the coun­try’s trop­i­cal for­est for palm oil cul­ti­va­tion.

At the end of 2014 the fund owned 0.91 per­cent of Posco worth US$ 198 mil­lion at the end of 2014, and 0.28 per­cent of Dae­woo val­ued at US$ 9 mil­lion.

Its 0.4- per­cent stake in Gent­ing was worth around US$ 41 mil­lion, and its 1.6- per­cent po­si­tion in IJM was worth US$ 46 mil­lion.

In­de­pen­dently of the eth­i­cal guide­lines, the fund has in re­cent years put in­creas­ing em­pha­sis on en­vi­ron­men­tal is­sues in its in­vest­ments, not­ing that prob­lems such as de­for­esta­tion and wa­ter man­age­ment can af­fect a com­pany’s fi­nan­cial vi­a­bil­ity.

In early 2012, it pulled out of 23 palm oil pro­duc­ers, with­out nam­ing them.

In­done­sia and Malaysia to­gether ac­count for about 80 per­cent of global pro­duc­tion, though the in­dus­try is grow­ing rapidly in Africa.

In or­der to im­prove prac­tices, palm oil pro­duc­ers, dis­trib­u­tors and non- gov­ern­men­tal or­ga­ni­za­tions in 2004 cre­ated the Round­table on Sus­tain­able Palm Oil ( RSPO), an as­so­ci­a­tion whose char­ter bars pro­duc­ers from clear­ing old- growth forests or other con­ser­va­tion sites for cul­ti­va­tion.

Nei­ther Dae­woo nor Posco are mem­bers of RSPO. Palm oil rep­re­sents only a small frac­tion of Dae­woo’s and Posco’s over­all busi­nesses.

“This is a sign that the fund takes the is­sue very se­ri­ously,” said Nils Her­mann Ranum of cam­paign group Rain­for­est Foun­da­tion Nor­way.

Gent­ing and IJM are RSPO mem­bers but have been ac­cused of not re­spect­ing its guide­lines and not be­ing trans­par­ent enough.

“This shows that RSPO is ar­chaic when it comes to en­vi­ron­men­tal cer­ti­fi­ca­tion,” Ranum said.

“If it still wants to be taken se­ri­ously, it needs to tighten up its reg­u­la­tions.”

Nor­way’s pen­sion fund is in­tended to pay for fu­ture gen­er­a­tions in the wel­fare- state af­ter the coun­try’s oil wells run dry.

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