Norway's pension fund under fire from OECD for human rights failure

open | 31 May, 2013

NEW YORK, Thursday. The world's largest sovereign fund the US$ 714 billion Norwegian State Pension Fund Global (SPFG) this week was accused by a OECD representative for being less than transparent with its investment policy and contradicting Norway's undertaking both in OECD and the UN High Commissioner of Human Rights.

OECD is angered by the fund's - popularily known as the Oil Fund -  handling of its investment in a controversial mining venture in the South Indian state of Orissa where thousands of local residents are allegedly forcibly resettled.

The Oil Fund's own ethics committee is also presently under pressure to come to a conclusion on its investment in ExxonMobil. The US oil giant stands accused of violating human rights by propping up a corrupt and oppressive dictator, Theodore Obiang Nguema in Equatorial-Guinea.

The Indian state of Orissa with a 43 million population, growing by a million a year, has a large share India's most attractive mineral reserves. Mining in Orissa has largely been inaccessible due to non-existant infrastructure, corrupt politics and local farmers unwillingness to move away from state land. The state is one of the country's poorest, and therefore one of the world's poorest areas, with, says Unicef,  40 percent of under three year old's underweight and the highest school drop out rate in the country. The Orissa state government however claims some improvements with the help of Norwegian state financing 2007-12, put in place in attempt tp reach the n Milllenium goal for child mortality in four of India-s poorest states.

The Posco venture, a planned massive US$ 12 billion investment delayed for 6 years already,  has been accused in Indian media for murky land acquisition tactics, illegal tree felling and last week faced  semi-nude protesters in one of the affected villages. Mint, a leading Indian business paper, reports Posco may be on the brink of getting a formal land clearance mid-June to build the iron- and steel plant, but still has not been allocated any ore supply and environmental clearance is also awaiting.

OECD's frontman in Norway, law professor Hans Petter Graver, charges that Oil Fund's investment management, led by CEO Yngve Slyngstad, is less than cooperative in the Posco case and that their secrecy goes against the grain of OECD's as well is a breach of Norway's commitment to the UN High Commissioner of Human Rights.

“It is especially regrettable that the governmental manager of the Norwegian Pension Fund Global, and one of the biggest investors in the world, does not respect the guidelines which Norway has signed (with the OECD),” Graver lamented.

The Oil Fund's investment management said it indeed had been cooperative, but that it did not answer to written questions citing a general need for business confidentiality in particular. CEO Yngve Slyngstad also stated, to Norwegian Television, that the investment in Posco was minor and not large enough to fall under OECD's transparency rules.

Most of Norway's Oil Fund's investments are minor by design, the strategy is to spread investments widely - and not to go for shareholding power and excessive exposure.

In the Posco-case, professor Graver pointed out, the lack of transparency would cast doubt over fund's status as a "responsible investor". He went further and stated that the Oil Fund needed to satisfy the public that the Posco investment was acceptable from a human rights point of view,  that it worked with other investors to find out what Posco was up to besides one strong well known feature in Orissa - the extensive use of children in mining there.

A Oil Fund spokesperson has since added it may introduce wide global restrictions on investments in mining - and cattle farming - with exessively bad labour practics.

The ExxonMobile decision, with potentially have more far reaching consequences, is a ethical hot potato on the Oil Fund's plate. ExxonMobil is the fund's tenth largest investment globally.

A decision against the fund's investment in ExxonMobil could easily snow-ball out of control as it touches the core of the Oil Fund's reason of being. The fund's own primary source of revenue, comes from Statoil, which is doing much the same in Angola as ExxonMobil is doing in Equatorial-Guinea. That is to ultimately support a, at best, tainted leader who has treated his country's assets as an extension of his own.

Angola is a better place to live in than Equatorial-Guinea and Statoil is not in the same dominant position as ExxonMobil is in Equatorial-Guinea, but rather shares the blame with many others. The Luanda Government recently set up its own equivalent of Norwegian Oil Fund and massive investment in the country's infrastructure is under way.

And Angola at least has a democratic constitution in place and holds regular reasonably contested elections. But there are nevertheless massive economic disparities. Angola's majority population has seen little or none of more than 20 years of accumulated oil income has trickled down.

Angola has become Norway's most important partner in Africa. By far the largest chunk of the 85 billion Norwegian krona invested in Africa over the past 15 years have ended up in Angola. Mostly to kick off Norwegian state owned oil company Statoil's production there.

So in the real world whatever the Oil Fund's ethics committee will decide, it will be cautiously worded and ring fenced in such a way that it cannot spill over to Angola or other parts of Africa - or elsewhere in the world - where Statoil's and Norwegian commercial interests are at stake.

This is, of course, the limitation of an Oil Fund's ethics committee, it can't cut off the hand that feeds it. That said, it is not all about oil.

Norway is a major Global human rights campaigner, gives more aid than no-one else in and has become known as a financier of last resort for good causes by eager fundraisers. The largest wealth creator and the largest per capita influencer. Its worth respect. (A position next-door neighbour Sweden held during the Cold War.) But, As OECD points out, with it comes responsibilities.

Besides securing  Norway's oil revenue's for future generations  the day the oil is finished the fund is bound to do so in a ethically acceptable manner, that is to “promote good corporate governance and high social and environmental standards” where ever it invests.

What the world's largest pension fund does counts tremendously. It has to look at the ethics of its 10 000 or so investments from a possible angles: human rights, freedom of expression, sustainability, corruption to name a few.

Most recently, early in May, the fund, reported it had sold interests in American company Schweitzer-Mauduit International Inc. and the Chinese company Huabao International Holdings Limited for being involved in tobacco production, which leads to automatic disqualification.

And in April the Oil Fund reported it had sold its interests in in the palm oil industry, worth US$ 314 million, citing deforestation.

Early January Germany's Siemens was struck off the Oil funds watch list. Siemens was  under observation for four years after fit was convicted for corrupt practices in a range of deals around the world, including Nigeria.

French peer Ahlstom is under observation since 2011 for similar reasons.

Companies involved in certain categories of arms, e.g. land mines and cluster munitions as well as nuclear arms, are off limits. Raytheon, Lockheed Martin, General Dynamics and Babcock & Wilcox are among the better known on SPFG's black list.

Equally companies found out to deviate to dramatically from child labour or judged to contravene international fair labour norms are in the fund's firing line. Most notably Wal-Mart was struck of the Norwegian's list in 2006, an action that caused a diplomatic storm including the US Ambassador lashing out that the fund had not even answered to letters.

The Netherlands State Pension fund followed suite and also dropped Wal-Mart in 2011, after a four year process of communicating with Wal-Mart.

In total there are about 50 companies on Nowegian State Pension Fund's, black list to date (http://www.regjeringen.no/en/dep/fin/Selected-topics/the-government-pens...). To be continued.