Norway oil fund excludes 4 Asian companies

In the first use of a new procedure, Norway’s central bank decided the world’s largest sovereign wealth fund should not be able to invest in Daewoo International and Posco of South Korea, and Genting and IJM of Malaysia.

The four Asian companies join more than 50 companies that are excluded by the oil fund, including Boeing, British American Tobacco, Rio Tinto and Walmart.

Decisions from the oil fund, which owns on average about 1.3 per cent of every stock in the world, are closely followed by other investors on ethical matters.
 

Monday’s exclusions mark the first time that Norway’s central bank made the final decision rather than the ministry of finance in an effort to depoliticise the fund.

The central bank acted on recommendations from the council of ethics, which over the past year issued warnings on all four companies.

The council warned that industrial group Daewoo and its parent company, steelmaker Posco, should be excluded because of risks over the conversion of tropical forests in Indonesia into palm oil plantations. The oil fund owned 0.9 per cent of Posco at the end of 2014, worth $198m, and 0.3 per cent of Daewoo, worth $9m.

Genting and IJM, two of Malaysia’s leading conglomerates focused on casinos and construction respectively, were also excluded because of Indonesian palm oil plantations. The oil fund owned 0.4 per cent of Genting, worth $41m, and 1.6 per cent of IJM, worth $46m, as of the end of 2014. It normally sells out of its positions before excluding companies.

In all four cases, Norges Bank’s executive board decided there were no other options open — such as formal protests or engagement with the companies — than divestment. The board will meet four times a year to consider exclusions.

Civil activists had grown frustrated with Norway’s recent performance on exclusions. After a high-profile start in which it excluded producers of tobacco and weapons such as nuclear and cluster bombs, several decisions on divestments had languished in bureaucratic limbo between the council of ethics and the finance ministry.

But pressure groups are also wary of giving too much power to the central bank, an arm of which — Norges Bank Investment Management — manages the oil fund. In turn, executives within the oil fund are worried about being perceived as a political tool in the countries they invest in.

Yngve Slyngstad, NBIM’s chief executive, has been positioning the fund as a more active investor in corporate governance matters, engaging more with companies on issues such as climate change and children’s rights. In its own report on responsible investing earlier this year, it revealed it had sold out of 114 companies since 2012 — several of which were in the palm oil sector.