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 By the end of this year, the fund which invests income from Norway's
oil and gas production could add the first companies to its
blacklist for emitting too much climate changing gas, said the
chairman of its independent ethics panel, Johan H. Andresen.
The ethics panel will also look into allegations of human rights
abuses in Qatar's building sector, Malaysia's electronics goods
industry, and textile factories in some Asian countries, Andresen
told Reuters.
The fund is the world's biggest sovereign wealth fund, owning 1.3
percent of all listed company equity on earth. As of the end of last
year it owned shares in 9,050 firms worldwide.
It is forbidden by law from investing in firms that produce nuclear
weapons or anti-personnel landmines, or are involved in serious and
systematic human rights violations, among other ethical criteria.
Norway's parliament has set a new mandate from this year to restrict
investment in companies that emit excessive climate changing gases.
Andresen said his panel was still looking into the criteria for such
judgments but its first recommendations on climate criteria could
come by the end of the year.
Some 66 companies have so far been excluded from the wealth fund on
ethics grounds, and two are under observation, including, since
January, Brazil's state oil company Petrobras <PETR4.SA>, under
scrutiny for alleged corruption.
"Most of the corruption cases come from the industry studies within
defense, telecoms and energy. Those three (sectors) seem to keep us
very busy," Andresen, the council's chairman, said in an interview.
"We will of course look into other companies, should we be made
aware of them."
The Council on Ethics makes recommendations to the central bank on
firms which may be in breach of the fund's ethics guidelines. It is
now examining 14 corruption cases, including Petrobras.
Based on the council's recommendations, the central bank board
instructs the fund's management whether to exclude companies from
the fund. The board can also put firms under observation to allow
them to fix the problem. A key factor is the risk that an ethics
breach will be repeated in future.
The risk of corruption increases in the energy, defense and telecoms
sectors as they more often involve large contracts between parties
that can withhold information based on internal national security
directives, Andresen said.
"We were especially surprised with what we found in the arms
industry. It seems that the absence of corruption was the exception
and not the norm," said the 54-year-old Norwegian investor, owner of
private investment vehicle Ferd.
Andresen declined to comment specifically on Petrobras, but speaking
generally, he said: "Companies should aspire to be far better ...
They should not try to guess what is the least amount of good
behavior that is expected."
Across all sectors, he expected the number and frequency of
recommendations to the central bank's board to increase as the
council concludes the different sector studies it has begun.
"We did recommend one company for exclusion last week, and there are
others that we are working on right now. Some of these companies are
quite large, so the (central) bank may decide to undertake some type
of ownership interaction," he said.
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TEXTILE, CONSTRUCTION AND CLIMATE CHANGE
Asked about the apparent irony in looking at climate change for a
fund that earns nearly all its wealth from Norway's oil and gas
industry, Andresen said: "We don't get involved in politics and
therefore we don't question the criteria. Whichever criteria the
politicians give us, we will use."
Andresen said the council would look at "a broad set of industries"
including the oil and gas sector over climate change, and had not
yet concluded which factors to analyze to determine what is
acceptable.
"I don't think there is a reason to avoid looking at oil and gas
companies. But they are not going to be the only ones by far," he
said, speaking at the council's office in central Oslo.
"We think that there might be some exclusions towards the end of the
year within the climate criterion."
Next month the council will receive a first report on the
construction industry in Qatar. Construction companies working in
neighboring countries will be under review too, he said.
Also under scrutiny will be electronics goods manufacturers in
Malaysia.
The council will look at workers rights in the Indian and
Bangladeshi textile industries, after looking at Cambodia and
Vietnam last year.
"In earlier studies of textile production facilities, we have been
confronted with forced overtime, loss of bonus when legally sick,
possible child labor, safety issues and the integrity of the
construction of the (plant) building," he said.
Another target will be the environmental damage made by the chemical
industry. The council is looking at "less than ten" companies in
this field, he said.
The council, although independent, is collaborating closely with the
fund, which has its own ethical targets, such as children's rights,
human rights and water management. They are working together on the
textile industry.
"They are focusing on the buyers' side, the big companies within the
fund, while we engage with the smaller companies where the potential
breach is happening on the ground," he said.
(Editing by Peter Graff)
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