A further 10 companies are to be excluded from KLP’s investment portfolios with effect from June. Five companies are being excluded on the grounds of their income from coal-based operations, two companies for violations of ethical norms, one for corruption, one for severe environmental damage and one for the production of tobacco. One company, Dongfeng Motor Group, is being readmitted.
KLP and KLP funds (KLP) has undertaken its half-yearly review of the companies in which it may invest under the company’s guidelines for responsible investment. As a result, a further 10 companies will be excluded with effect from June 2015: Cemex SAB de CV, China Power International Development, China Railway Group Ltd, Electric Power Development, FirstEnergy Corp, Heidelberg Cement, Huadian Power International, Huaneng Power International Inc., Noble Group and Sabanci Holdings (Haci Omer).
Five new coal companies
KLP is excluding a further five companies on the grounds of their coal-based operations: China Power International Development, Electric Power Development, FirstEnergy Corp, Huadian Power International and Huaneng Power International.
Coal companies are defined as companies which derive a high proportion of their revenues from coal-based operations, largely mining enterprises and power utilities. KLP has decided to exclude any company which derives 50 per cent or more of its revenues from coal-based operations
“KLP will continue to assess the definition and the threshold set as the basis for decisions relating to exclusion. It may be expedient to take account of additional parameters, but at the moment we do not have data of sufficiently high quality or coverage for our global investments to consider whether any adjustments are appropriate. Furthermore, we will naturally consider the new coal criterion adopted for the Norwegian Government Pension Fund Global (GPFG), and evaluate further exclusions in light of this,” says Jeanett Bergan, Head of responsible investment at KLP Kapitalforvaltning.
Heidelberg Cement and Cemex
KLP is excluding Heidelberg Cement and Cemex on the grounds of their exploitation of natural resources in occupied territory on the West Bank. In KLP’s opinion this activity constitutes an unacceptable risk of violating fundamental ethical norms.
“From the perspective of international law, an assessment of this case has proved more difficult than similar assessments with respect to Western Sahara. Nevertheless, the international legal principle that occupation should be temporary has carried the most weight. New exploitation of natural resources in occupied territory offers a strong incentive to prolong a conflict,” says Ms Bergan.
China Railway Group (CRG)
KLP’s decision to consider the exclusion of China Railway Group was prompted by Recommendation 10 October 2014 to exclude China Railway Group Ltd, published by the Norwegian Government Pension Fund Global’s Council on Ethics. The recommendation was announced in connection with publication of the Council on Ethics’ 2014 annual report.
KLP considers the Council on Ethics’ analysis and conclusion to be very well founded, and sees no reason to depart from its recommendation, unless conditions at CRG have materially changed since the recommendation was written in October 2014. KLP finds nothing to substantiate any such assumption, nor has the company replied to KLP’s queries.
“In our view, therefore, there is still an unacceptable risk that CRG has been involved in gross corruption, and that the company has still not implemented corruption-prevention measures capable of reducing the risk of such practices being repeated. This has led to the company’s exclusion from KLP’s investment portfolios,” says Ms Bergan.
Noble Group is also a company assessed after publication of the Council on Ethics’ annual report. In its Recommendation 26 June 2013 to exclude Noble Group Ltd, the Council on Ethics recommends divestment “due to an unacceptable risk that the company is responsible for severe environmental damage as a result of its conversion of tropical forest into oil palm plantations”.
“When a company converts rainforest to palm oil plantations in an extensive licensing area that includes unique flora and fauna, the quality of the conservation assessments underpinning such a move are crucial. In KLP’s opinion, the company has failed to satisfactorily explain the omissions which the Council on Ethics has identified in the HCV assessment. As a result, the risk of severe environmental damage is considered to be unacceptably high,” says Jeanett Bergan.
Sabanci Holdings (Haci Omer) is being excluded because the company is involved in tobacco production.
Dongfeng Motor Group readmitted
Dongfeng Motor Group Co. Ltd. was excluded in December 2008 after the Norwegian Ministry of Finance announced the company’s exclusion by the GPFG on the recommendation of the Council on Ethics. Exclusion was recommended because the company sold military equipment to Myanmar. In December 2014 the Norwegian Ministry of Finance announced that the exclusion of Dongfeng from the GPFG had been revoked, since the sale of military equipment to Myanmar was no longer grounds for exclusion. On this basis, KLP has also rescinded its policy of exclusion.
More information about the exclusions.
KLP has now excluded 108 companies from its investment portfolios for violations of its guidelines on responsible investment. 10 companies can be linked to human rights violations, 3 to violations of individuals’ rights in war and conflict, 9 to violations of other fundamental ethical norms and 1 to labour rights abuses. In addition, 16 companies can be linked to severe environmental damage and 19 to the manufacture of controversial weapons. A further 21 companies have been excluded because they produce tobacco, while 32 have been excluded because they extract coal or engage in coal-fired power generation. 1 company has been excluded on the grounds of corruption.