June 16, 2006
Norwegian Government Pension Fund Dumps Wal-Mart and Freeport on Ethical Exclusions
by Bill Baue
The $230 billion global fund--one of the largest pension funds in the world--cited Wal-Mart for
systematic human rights violations and Freeport for serious environmental damage.
Last week, the Norwegian Ministry
of Finance announced its divestment of two companies--Wal-Mart (ticker: WMT) and Freeport McMoRan Copper
and Gold (FCX)--from the global portfolio of
the Government Pension
Fund based on recommendations by its Council on Ethics. The fund excluded both
companies for contravening Point 4.4 of its Ethical
Guidlelines that "constitute an unacceptable risk of the Fund"--Wal-Mart for "complicity in
serious or systematic human rights violations" and Freeport for "severe environmental damage."
The Freeport exclusion represents the first time the fund has invoked the environmental
damage provision, while the human rights provision was cited in a call to divest from Total (TOT) late last year
for complicity in human rights violations in the Yadana gas pipeline in Burma that the Ethics
Council denied. The $230 billion fund, which on the first of this year merged the National
Insurance Scheme Fund and the Government Petroleum Fund, has divested from 17 companies since the
latter adopted broad socially responsible investing (SRI) criteria in 2004. An environmental fund
that initiated screening based on Ethical Investment Research Service (EIRIS) recommendations spun off in 2001 from the Petroleum Fund,
which invests surplus oil revenues, and reintegrated in 2004 when the overall petroleum portfolio
committed to SRI.
"An extensive body of material indicates that Wal-Mart consistently and
systematically employs minors in contravention of international rules, that working conditions at
many of its suppliers are dangerous or health-hazardous, that workers are pressured into working
overtime without compensation, that the company systematically discriminates against women in pay,
that all attempts to unionize by the company's employees are stopped, that employees are in a
number of cases unreasonably punished and locked in, along with a number of other circumstances,"
states the Council of Ethics in its November 15, 2005 recommendation. "What makes this case special is the sum total of ethical
norm violations, both in the company's own business operations and in the supplier chain."
"It appears to be a systematic and planned practice on the part of the company to hover at, or
cross, the bounds of what are accepted norms for the work environment," continues the Council,
which was founded in 2004. "Many of the violations are serious, most appear to be systematic, and
altogether they form a picture of a company whose overall activity displays a lack of willingness
to countervail violations of norms in its business operations."
Norges Bank, the state-owned bank that manages the
fund, recommended engaging in shareowner dialogue (or "exercising the fund's ownership rights")
with Wal-Mart to try to induce positive change. However, Wal-Mart did not inspire confidence in
this method when it failed to answer a letter the bank sent in September 2005 asking the company to
respond to the allegations of human and labor rights violations compiled by the Council since it
began investigations in June 2005.
The Business and Human Rights Resource Center, an
independent nonprofit that seeks to achieve balance by inviting companies to respond to reports
posted on its website that criticize their conduct, posted a June 7 Reuters article on the divestment
decision. The company has yet to post a response. Wal-Mart spokesperson Gail Lavielle did not
respond to SocialFunds.com's request for the company's position on the divestment decision.
While the fund strongly supports the use of shareowner dialogue to encourage companies to move
on social and environmental problems, it considered Wal-Mart a hopeless case.
"In light of
the Council's recommendation, the Ministry of Finance finds it unlikely that exercising the Fund's
ownership rights vis-à-vis Wal-Mart will sufficiently reduce the risk of the Fund contributing to
ethically unacceptable conduct, as this is defined in the Ethical Guidelines," stated Minister of
Finance Kristin Halvorsen, a member of the Socialist Party that took office last year. "I would
also recall that the Council on Ethics is mandated to monitor companies excluded from the Fund's
investment universe to determine whether a basis for exclusion still exists."
recently extended EIRIS's contract to include corporate news monitoring service on ethical issues.
If news accounts show Wal-Mart reforming sufficiently, the fund can reinvest.
exclusion was based on allegations that the company has caused extensive environmental damage by
disposing of tailings including arsenic, cadmium, and mercury from its Papua, Indonesia copper
mines into a natural river system. Unlike Wal-Mart, Freeport responded to Norges Bank's letter
requesting explanation, stating the allegations are "utterly false" and appear "to be based largely
on outdated information or biased reports issued by non-governmental organizations who are
anti-mining or have a political agenda."
"Freeport denies the accusations made against the
company, but chooses not to present data, test results, or other concrete information or scientific
evidence which might substantiate its claims that the mining operation does not cause severe and
lasting environmental damage," states the Council in its February 15, 2006 recommendation.
After the fund requested divestment in late March
2006, Norge Bank dumped 2.5 billion Norwegian crowns (about $416 million) in Wal-Mart shares, and
about 116 million crowns in Freeport shares by the end of May.
Shortly after the fund
publicized its move, the UK Social Investment Forum (UKSIF) announced a new two year program to encourage pension funds
to analyze environmental, social, and governance (ESG) issues in their investment decision-making.
The program focuses both on pension funds at companies identified as corporate social
responsibility (CSR) leaders and on government pension funds. Later this year, UKSIF will survey
ESG considerations incorporated by pension funds of around 300 UK listed companies, including those
in the FTSE4Good Index and the
Carbon Disclosure Project's Climate Leadership Index. The goal of this
project is to inspire uptake of SRI by identifying best practice by pension funds.
activity of the Norwegian Government Pension Fund exemplifies exactly the kind of engagement and
action UKSIF wishes to spotlight.