When the Burmese pro-democracy leader Aung San Suu Kyi was finally freed in late 2010 after years of house arrest, hopes were high that the country’s government would reform. Rich in off-shore oil, gas and other natural resources such as precious stones and teak, the south-east Asian country has long had much to attract investors. 

But international trade sanctions against Burma due to human rights abuses perpetrated by the governing military junta have kept many foreign investors at bay. Since Aung San Suu Kyi’s release, however, and Burma’s switch to a nominally civilian government, those sanctions have been largely removed. 

The prospect of renewed investment in the troubled country was highlighted recently by statements from some of Denmark’s pension funds. This spring, ATP, PKA and Sampension said they were ready, in theory at least, to invest in companies involved in oil extraction in Burma once more. Denmark, they explained, had changed its attitude to the country; it also plans to open an embassy in the capital, Rangoon.

Back in 2007-08, the funds, which together manage around DKK1trn (€134bn) of assets, divested from the country after the government said EU sanctions against the Burmese government should include oil extraction activities.

ATP had sold nearly DKK1bn of Total shares as well as smaller holdings in other oil companies co-operating directly with the Burmese state enterprise Myanmar Oil. PKA sold DKK65m of shares in Total while the €27bn pension provuder Sampension offloaded around DKK100m of stocks in Total and Chevron.

The pension funds may now be removing those companies from their blacklists but all three revealed a cautious attitude behind this headline statement.

ATP says if it does decide to invest in any of these companies again, it would first screen the business to make sure there was nothing that could contravene its social responsibility code, and PKA has made a similar point.

“This does not mean that [we] necessarily will invest in oil companies operating in Burma,” says Anne Charlotte Mark, head of equities and alternatives at Sampension. “Companies must continue, of course, to meet our general requirements of the responsible investment policy.”

The Danish government says its decision to open an embassy in Burma shows its support for “the Burmese Spring and the country’s giant leap towards democracy and human rights”.

However, the move was part of a large-scale reform of the Danish Foreign Service, which will open a series of new embassies in countries outside Europe and close several within the EU. The government says it wants to help Danish businesses in markets that it believes will drive future economic growth.

PGGM, the €158bn Dutch pension fund service provider, also stresses the importance of scrutinising investments in Burma, which it says certainly come with extra ESG and other risks.

At a glance

• ATP, PKA and Sampension have removed stocks linked to oil extraction in Burma from blacklists and the Danish government plans to open embassy.
• Despite moves back into international fold, barriers to democracy in Burma remain.
• ESG and other risks mean pension funds must scrutinise and monitor stocks operating in Burma.
• The Global Compact’s new network in Burma is seen as a helpful platform for investors sharing experience.

“We do not have a policy to refrain from such investments,” says Saskia van den Dool, adviser for responsible investments at PGGM. “Rather, we make clear that we expect the companies operating here, or looking to move into this or other high-risk markets, to take extra precautions to manage these additional risks in their core business activities.” In doing that, she adds, the companies must be transparent.

PGGM has urged the EU to require European companies doing business in Burma or with its government to undertake human rights due diligence and to disclose publicly and regularly on company policies and practices, Van den Dool says.

“In addition to that, we expect that companies take steps to ensure that they make a positive contribution to the situation in the country, for example, by strategic social investment or by engaging in dialogue with the government to address sensitive issues,” she says.

In the US, companies making new investments of $500,000 (€366,570) or more in Burma must now report on their operations, policies, procedures and impacts.

Van den Dool notes that the Global Compact – UNPRI Guidance on Responsible Business in Conflict-affected and High-risk Areas, which PGGM helped to draft – summarises the pensions manager’s expectations and guides its dialogue with companies.

The local network that the Global Compact is now establishing in Burma could provide a helpful platform for local as well as international companies to share best practice, she says, as well as comparing dilemmas they face when operating in Burma.

Despite Denmark’s diplomatic overtures towards the country, campaign groups appear far less positive about Burma’s path to redemption. “The EU might have dropped trade sanctions but the human rights abuses which led to them being put in place have not stopped,” says Mark Farmaner, director of Burma Campaign UK.

Huge risks for investors remain, he says: “Politically, Burma has not yet made a transition to democracy. The government is made up of generals from the former dictatorship who have taken off their uniforms, and a new constitution gives the military effective control over every level of government.”

The Burmese constitution means that even if Aung San Suu Kyi’s party – the National League for Democracy – does win most eligible seats in parliament, she will not be able to become president and there is no guarantee that her party will even be in government. 

“This potential political instability is leading many investors to adopt a wait-and-see approach,” says Farmaner, though he adds that his campaign is no longer calling on companies to stay away from the country.

“Investors in Burma face major problems regarding sourcing and business partners,” he says. 

“Much of the economy is dominated by companies and business people who are linked with the military and government, and who gained their wealth through corrupt practices and benefited from human rights abuses such as land confiscation.”

Lisa Misol, US-based senior researcher on business and human rights at Human Rights Watch, says the ongoing problems related to human rights, security and corruption are serious, and not limited to sectors known to be problematic, such as oil, gas and mining. 

“Widespread land grabbing controversies show that companies in many other sectors may be implicated in abuses,” she says. “For pension funds and institutional investors to be able to make sound decisions in such a difficult context, they will need to ask tough questions about what companies are doing to address serious human rights risks and how well they’re doing it.”

Kathy Mulvey, executive director of EIRIS Conflict Risk Network, part of the responsible investment research firm EIRIS, says it is critical that pension funds and other institutional investors consider the risks associated with particular investments in Burma, and how the companies involved manage those risks.

But despite all the problems, she says there are opportunities for companies to contribute to peace and stability in Burma, creating jobs, driving economic growth, investing in local communities as well as ensuring respect for human rights and environmental protection. 

In May, EIRIS started a new service to help investors judge how companies were managing conflict risks related to operating in the country.

EIRIS Conflict Risk Network launched Investment Watch: Burma/Myanmar on the first anniversary of the US government’s Burma Responsible Investment Reporting Requirements taking effect.

Subscribers to the service can identify companies they might have in their portfolios that are investing or considering investing in Burma, assess the risks of investing in such companies and develop their own policies related to the country, EIRIS says.