Norway’s primary municipal pensions provider KLP has announced it is adding 12 companies to its investment blacklist this month on environmental and social grounds, and re-admitting four firms that are no longer falling foul of its guidelines.
The NOK765bn (€72.6bn) fund revealed it has sold off NOK38m (€3.6m) of investments in the mostly small firms being rejected from its investment universe from this month for coal, oil sands, gambling, alcohol and environmental damage reasons.
The new exclusions include Jardine Strategic Holdings, Jardine Matheson Holdings and Cimic Group because of coal business, along with Japan Petroleum Exploration for oil sands involvement.
Last year, KLP tightened its divestment criteria on oil sands, selling the shares and bonds of five companies with activities in the fossil fuel business as a result.
Landing International Development and Universal Entertainment Corporation are two of the five firms being newly rejected by the Norwegian fund for gambling activities, while BJ’s Restaurants and MGP Ingredients have been banned for alcohol business.
ElSewedy Electric has also been divested on the grounds of serious environmental damage, regarding a dam and a hydroelectric plant being built in Tanzania, said KLP.
The four companies being brought back into the fold include Aecom and Raytheon, because they are no longer involved in the production of components for nuclear or cluster weapons.
Petrobas ban reversal
KLP also said its exclusion of Petrobras on the grounds of corruption is being reversed, with Texwinca Holdings – which was excluded for human and workers’ rights – no longer banned since the factories affected were closed down.
These re-inclusions have resulted in new investments of NOK140m, the fund said, though it added that Texhwinca was currently outside its investment universe anyway.
Asked whether KLP expected the new divestment decisions to influence the corporates’ future behaviour, Jeanett Bergan, head of responsible investment at KLP, told IPE the potential impact of such blacklistings depended on the nature of a firm’s involvement in the business activity being rejected.
“As this is a product-based criterion, it really depends if the company’s core business is what excludes them – if so, then it will be hard for us to have any influence, but if it’s a minor part of their business, or if they are transitioning away from coal, for example, it could make a difference,” she said.
“In the main KLP divested from certain business sectors because it believed these had negative effects on society and therefore did not want to earn money from these areas”
However, in the main KLP divested from certain business sectors – such as alcohol, tobacco and gambling – because it believed these had negative effects on society and therefore did not want to earn money from these areas, Bergan said.
Risk management framework evolves
Separately, KLP said it had recently amended the part of its responsible investment guidelines on how its assessed risk in investing and whether to exclude a company.
“We are developing a new overall framework for risk management and due diligence in our investments now, and the change we have adopted in the exclusion criteria is part of this work,” Bergan said.
The new paragraph allowed KLP to exclude companies on due diligence grounds, with a combination of country risk, industry risk and corporate risk allowable as grounds for exclusion, she said.
The thinking behind this, she said, was that while investors and companies had a due diligence obligation under the UN’s guiding principles for business and human rights and other norms, certain countries and markets which involved higher ESG risk had a lack of transparency and freedom of speech – which hampered monitoring of potential breaches.
“Saudi Arabia is just such a market and we will probably use this new criterion in eventually evaluating which companies to invest in,” Bergan said.
Since last year, KLP has been assessing Saudi Arabia as a potential investment location, with the Gulf state having been included in the MSCI Emerging Markets index from July 2019.
This assessment has not yet come to a conclusion, Bergan told IPE.