This Blog Essay site devotes every February to a series of integrated but short essays on a single theme. The Ruminations Series in 2009 produced a series of aphoristic (ἀφορισμός) essays, meant to provoke thought rather than explain it. The hope was that, built up on each other, the series would provide a matrix of thoughts that together might lead the reader in new directions. Ruminations continue to be produced form time to time. For 2010, this site introduced a new series--Business and Human Rights. The series took as its starting point the issues and questions raised by John Ruggie, the United Nations Special Representative of the Secretary-General (SRSG) on business and human rights, in a global online forum.
For 2011, this site introduces a new series of integrated essays--Developing a Coherent Transnational Jurisprudence of Ethical Investing: The Norwegian Sovereign Wealth Fund Ethics Council Model. The object of this series to to consider the work of the Ethics Council of the Norwegian Sovereign Wealth Fund. The thesis of this series is this: The Norwegian Sovereign Wealth Fund (NSWF ) investment program is grounded in the application of a set of Ethical Guidelines adopted by the Storting (the Norwegian Legislature) and enforced through an Ethics Council charged with determining whether a company should be excluded from investment by the NSWF. The work of the Ethics Council has produced the beginnings of a coherent jurisprudence of ethics for corporate investment. That jurisprudence may contribute significantly both to the development of transnational social norm standards and affect the way domestic corporate law is understood. This is Part XII of the series.
From Norway has ethics problems with Rio Tinto, SOX First, Sept. 11, 2008.
Part XII: Ethics and a Jurisprudence of Responsible Investment: The Cases--
II. Conduct--Complicity
2. Environmental damage
There are eight principal determinations (in reverse chronological order):
1. Recomendation of February 22nd, 2010, on the exclusion of the company Samling Global Ltd, [23.08.2010]
5.Recommendation of February 15, 2008, on exclusion of companies Rio Tinto Plc and Rio Tinto Ltd., [09.09.2008]
6.Recommendation of May 15, 2007 on exclusion of Vedanta Resources Plc, [06.11.2007].
7.Recommendation of August 24, 2006, on exclusion of DRD Gold Ltd., [11.04.2007].
8. Recommendation of February 15, 2006 on exclusion of Freeport McMoRan Copper & Gold Inc., 15.02.2006]
From Illegal Deforestation, Open Planet ("Illegal Deforestation is harvesting, transporting, processing, buying or selling of timber in violation of national laws. This includes harvesting wood from protected areas, exporting threatened plant/tree species, and falsifying official documents.")
Summary: The determination for exclusion based on environmental degradation is based on a set of principles derived from domestic law and customary international law. The environmental determinations suggest the Ethics Council at its quasi-judicial best, filling in gaps and extending the logic and implications of the Ethics Guidelines to develop a set of standards for exclusion applied where environmental degradation is at issue. The allegations in the cases provide the context within which customary international law and national law are utilized to develop a jurisprudence of environmental investment ethics. The specific context for the determinations are businesses in the extractive industries; the cases of exclusion for environmental damages were as a result of mining, with the exception of Samling in Malaysia, which was alleged to have contributed to deforestation in violation of legal standards applied by the Ethics Council.
In virtually all the determinations the companies were found to have violated the law of the host state in some way. The Council makes the point clear that while many of these companies were in direct violation of domestic law, the host state country did nothing to stop the violation of its own law and at timers supported the companies in their work. In this context, the Ethics Council applied a standard grounded in the law of the home state as well as international consensus standards, rather than ground its determinations on the law as applied of the host state. The theories were either one of the need for projections of international norms in "weak governance zones" or that of extraterritorial application of Norwegian law (appropriately internationalized as required by the Ethics Guidelines and the responsible investment strategy at the heart of the regulations). In either case, both the law and the effect fo the sovereign application of the domestic legal order of the host state was discounted and the law of Fund was privileged in determining the legitimacy of investment grounded in the conduct of the companies under investigation. That, of course, is a result at the heart of the responsible investment strategy--by applying Norwegian law to the investment activities of the Fund, and by aggressively moving into private markets (as an influential investment stakeholder), the Fund can affect governance decisions of the companies even if it could not affect the regulatory climate of the targeted host state. Combined with the active investor rules, this provides the Fund with an important set of tools to regulate globally through the social norm systems implemented through markets.
For that purpose, the Ethics Council has created its own regulatory standards and criteria for exclusion. The basics of this standard was developed in the first of the environmental determinations--Freeport McMoRan (US). In the Freeport determination, the Ethics Council established a seven factor standard where exclusion is sought on environmental grounds:
- The damage causes irreversible or long-term effects.
- The damage has considerable negative consequences for human life and health.
- The damage is the result of violations of national law or international norms.
- The company has failed to act in order to prevent damage.
- The company has not implemented adequate measures to rectify the damage.
- It is probable that the company’s unacceptable practice will continue.
It appears that these factors were created solely by the Council to attempt to legitimize its own actions and recommendations while drawing on international customs as well as western standards to an extent.
Extractive Industries and Sustainable Development, Vale Columbia Center on Sustainable International Investment 2010 ("The shared goal for companies, host-country governments and civil society is an investment framework that promotes sustainable development and the mutual trust needed for long-term investments. The extractive industries face a special need for such trust, given the massive long-term investments that they undertake in poor and potentially unstable countries. ")
Case Summary:
1. Recomendation of February 22nd, 2010, on the exclusion of the company Samling Global Ltd, [23.08.2010].
1. Company subject to investigation
a. Name: Samling Global Ltd. http://www.samling.com/eng/global/home.htm
b. form of organization (corporation, Partnership, etc.): Public Company
c. home country: Malaysia (incorporated in Bermuda)
d. countries (exchanges) where shares are traded: SEHK
e. largest shareholders (individual, state owned enterprise, etc): Unknown
f. form of investment by the Norway SWF fund: Equity
2. Chronology
a. Date complaint filed: 2 March 2008
b. Date complaint resolved by the Ethics Council: 22 February 2010
3. Complainant
a. If the state, the office from which the reference was made: The decision for divestment was made just months after the company went public and weeks after it was included in the fund, the Council does not note who brought on the allegations.
b. If not the state the name and affiliation and home state of the complainant entity: Possibly from widespread media attention from NGO’s.
4. Complaint
a. Action constituting violation: Deforestation with its operations in Malaysia (Borneo) and Guyana, these were found to be in violation of domestic law in both nations.
b. “Legal” basis of violation: Similar to the Siemens case this was one of the few instances where the Council used its own interpretation of Malaysian/Guyanese law. While under the examination of the Council, Samling was in violation of logging in areas outside of the licenses scope, constructing and logging in areas that are Class IV Terrain (over 35 degrees), constructing roads that were over 50M wide, and getting within 1Km of the Indonesian border, all of this in violation of domestic law along with accusations that the company did not properly conduct assessments, cut prohibited species of trees, and cut over allowable quotas of trees with unacceptable diameter trunks.
5 Determination
a. Council recommendation (for example divest, retain, wait): Exclude
b. Legal basis for the determination: Environmental Damage
c. Underlying legal basis (Norwegian law, international treaty, customary international law principle, soft law standard, etc.): “The Council has focused its assessment on illegal logging and the environmental damage that occurs when laws and regulations are not being observed. The term ‘illegal logging’ designates felling, transport, purchase and sale of timber in contravention of national legislation” (Para. 4 Pg. 3)
6. Basis of Determination
a. standard of decision (rule or test etc.): The decision took into account the previous Freeport case, but also is the only exclusion of a company on the grounds of environmental damage that is not in the mining industry.
b. Use of prior Ethics Council recommendations as precedent or as persuasive: Freeport, list of seven criteria
c. Use of case law of other courts or bodies: Malaysia and Guyana
d. Reliance on other materials (identify): As for the sources that the Council came up with to prove its case the Council used accounts from local inhabitants (the Penan People, including 3 lawsuits), conflicting government officials from the Malaysian Auditor-General, Sarawak Government, and various other ministries in Malaysia as well as their equivalents in Guyana. Numerous statements and facts came from Samling itself and were provided via letter and website, further “To be able to assess the company’s operations, the Council commissioned its own research targeted at evaluating the legal and environmental performance of Samling Global’s forestry operations in Sarawak, Malaysia. Earthsight Investigations carried out the research in the period from April 2008 until December 2009. This included a field investigation into four of Samling’s logging concessions in Sarawak, as well as information gathering and numerous interviews with Sarawak government officials, labour unions, local NGOs and residents in the concession areas. The field investigations were conducted in April and September 2009” (Para. 7 Pg. 4). e. Rationale: Vast lumbering and deforestation is seen by the Council as being one of the biggest environmental threats to the world. While the Council does not exclude companies because they harvest timber, they will only exclude companies that violate the local laws of which they operate. There appears to be little international law put into place here.
From Norilsk-Nickel profit up 434 percent, Barents Observer.com, (2010-10-05) ("Nikel makes both very big money and very big ecological damage.") (Photo: Thomas Nilsen).
1. Company subject to investigation
a. Name: MMC Norilsk Nickel http://www.nornik.ru/en/
b. form of organization (corporation, Partnership, etc.): Public Company
c. home country: Russia
d. countries (exchanges) where shares are traded: RTS, MICEX, LSE
e. largest shareholders (individual, state owned enterprise, etc): Unknown
f. form of investment by the Norway SWF fund: Unknown
2. Chronology
a. Date complaint filed: 4 June 2008
b. Date complaint resolved by the Ethics Council: 16 February 2009
3. Complainant
a. If the state, the office from which the reference was made: The Council
b. If not the state the name and affiliation and home state of the complainant entity: None
4. Complaint
a. Action constituting violation: Significant environmental damage with the company’s operations in Northern Russia
b. “Legal” basis of violation: The company is guilty of breaking Russian law but due to the vast size of the company little has been done to stop it.
5 Determination
a. Council recommendation (for example divest, retain, wait): Exclude
b. Legal basis for the determination: Environmental Damage
c. Underlying legal basis (Norwegian law, international treaty, customary international law principle, soft law standard, etc.): The Council perceived there to be too much risk to invest in the company for fear of complicity in significant environmental damages.
6. Basis of Determination
a. standard of decision (rule or test etc.): In continuation of excluding companies based on environmental damages
b. Use of prior Ethics Council recommendations as precedent or as persuasive: Freeport
c. Use of case law of other courts or bodies: None
d. Reliance on other materials (identify): Local and international media attention, the company’s website and investor relations reports.
e. Rationale: There was enough evidence to exclude the company on many clauses of environmental damage including polluting the water, ground, and air, tailing disposal, and having poor health effects on local inhabitants.
1. Company subject to investigation
a. Name: DRD Gold Ltd. http://www.drd.co.za/
b. form of organization (corporation, Partnership, etc.): Public Company. Mines in question were operated under Emperor Mines (at the time a fully owned subsidiary).
c. home country: South Africa
d. countries (exchanges) where shares are traded: NASDAQ, JSE
e. largest shareholders (individual, state owned enterprise: Unknown
f. form of investment by the Norway SWF fund: Revoked
2. Chronology
a. Date complaint filed: 4 October 2005
b. Date complaint resolved by the Ethics Council: 24 August 2006
c. Date of reevaluation: 13 February 2009
3. Complainant
a. If the state, the office from which the reference was made: The source of the reevaluation does not appear to be dependent on any single organization. Instead DRD Gold sold off its operations with Emperor Mines leaving only operation in South Africa, which as of yet have not been accused of any damages.
4. Complaint
a. Action constituting violation: Severe environmental damage through air, water, and ground pollution which has caused irreversible environmental and health effects.
b. “Legal” basis of violation: International norms, soft law, principles and customs of the industry.
5 Determination
a. Council recommendation (for example divest, retain, wait): Reinclude
b. Legal basis for the determination (reference to the section of the Ethics Standard invoked): DRD Gold no longer had any operation in which the Council believed were in violation.
c. Underlying legal basis: International principles and norms
6. Basis of Determination
a. standard of decision (rule or test etc.): The primary decision used for environmental damage coming from the Freeport case.
b. Use of prior Ethics Council recommendations as precedent or as persuasive: Freeport
c. Use of case law of other courts or bodies: None
d. Reliance on other materials: DRD Gold’s website and SEC filings.
1. Company subject to investigation
a. Name: Barrick Gold Corp. http://www.barrick.com/
b. form of organization (corporation, Partnership, etc.): Public Company. Note that the mine in question for violation is also in part (minority stake) owned by the PNG Government (Enga Province).
c. home country: Canada
d. countries (exchanges) where shares are traded: NYSE, TSX
e. largest shareholders (individual, state owned enterprise, etc): Unknown
f. form of investment by the Norway SWF fund: Equity
2. Chronology
a. Date complaint filed: 4 October 2005
b. Date complaint resolved by the Ethics Council: 14 August 2008
3. Complainant
a. If the state, the office from which the reference was made: No organizations were directly stated in their involvement with bringing the company to the attention of the Council, but the company’s acquisition of Placer Dome in Papua New Guinea (PNG), along with accusations of atrocities in other operations, is the foundation of the complaint.
b. If not the state the name and affiliation and home state of the complainant entity: Look into the possibility of NGO involvement.
4. Complaint
a. Action constituting violation: Significant environmental damage with the company’s operation in PNG including locals suffering from ill health effects from mercury in the water, heavy metals in ground and air, and irreversible effects from the Porgera Mine.
b. “Legal” basis of violation: The Council’s own guidelines largely created after Freeport along with international norms.
5 Determination
a. Council recommendation (for example divest, retain, wait): Exclude
b. Legal basis for the determination: Environmental Damage
c. Underlying legal basis (Norwegian law, international treaty, customary international law principle, soft law standard, etc.): The Council cites international norms and the practices of like/similar companies in the sector (mining industry). Further the Council backs up its claim by saying the company is guilty of human rights violations in the 1990’s and tax evasion in 2002 in its operations around the world, but did not investigate.
6. Basis of Determination
a. standard of decision (rule or test etc.): The decision was reached taking into account the Freeport case and looking at MNC that are traded and based in the west, but operate in substandard (by western customs) conditions in Third World nations. These companies all have a history of taking part in massive violations to international norms in environmental stewardship.
b. Use of prior Ethics Council recommendations as precedent or as persuasive: Freeport
c. Use of case law of other courts or bodies: None, it is noted that investigations by NGO’s and other bodies (mainly the UN) was taken into account.
d. Reliance on other materials (identify): “The Council has drawn on a large number of sources to assess the accusations levelled against Barrick’s operation of the Porgera mine, including reports from domestic and international NGOs (in Australia, Canada, and Papua New Guinea), surveys and scientific papers related to environmental impacts from the mining operation, as well as other publicly accessible data. Members of the Council’s Secretariat have visited Papua New Guinea and had meetings with representatives from local NGOs, people who are directly affected by the mining operation, and experts with knowledge of the mine (Para. 3/4 P. 4), further “An important part of the background material has been the report “Porgera Gold Mine. Review of Riverine Impacts” from 1996. This study was carried out by The Commonwealth Scientific & Industrial Research Organization (CSIRO) at the request of the Porgera Joint Venture after the mine had been operative for 5 years. This is still the most comprehensive environmental
assessment that has been made of the mining operation to date.4 As a matter of fact, Barrick refers the Council to this report” (Para. 5 Pg. 4).
e. Rationale: There was enough evidence to exclude the company on many clauses of environmental damage including polluting the water, ground, and air, tailing disposal, and having poor health effects on local inhabitants.
From John Acher, Norway fund drops Rio Tinto on ethical grounds, Reuters, Sept. 9, 2008 ("Norway's sovereign wealth fund has sold its entire $850 million stake in mining group Rio Tinto, blaming it for environmental damage in Indonesia, the government said on Tuesday. . . . Finance Minister Kristin Halvorsen said the problems with Rio Tinto, the world's second-largest iron ore miner, concerned a joint venture with Freeport McMoRan, a group excluded by the fund in 2006, at their Grasberg mine in Indonesia.").
5.Recommendation of February 15, 2008, on exclusion of companies Rio Tinto Plc and Rio Tinto Ltd., [09.09.2008].
1. Company subject to investigation
a. Name: Rio Tinto PLC http://www.riotinto.com/
b. form of organization (corporation, Partnership, etc.): Public Company, in joint-venture with the mine in violation with Freeport
c. home country: U.K./Australia
d. countries (exchanges) where shares are traded: ASX, LSE, NYSE
e. largest shareholders (individual, state owned enterprise, etc): STATE FARM MUTUAL AUTOMOBILE INSURANCE CO, WENTWORTH, HAUSER AND VIOLICH, FISHER INVESTMENTS, INC., FMR LLC, WELLINGTON MANAGEMENT COMPANY, LLP
f. form of investment by the Norway SWF fund: Equity
2. Chronology
a. Date complaint filed: 25 June 2007
b. Date complaint resolved by the Ethics Council: 15 February 2008
3. Complainant
a. If the state, the office from which the reference was made: The Council’s assessment does not appear to come at the direct request of any group, at least not noted by the Council, but it does come nearly two years after Freeport had been excluded from the Fund due to the same violations at the Grasberg Mine, Papua, Indonesia. Rio Tinto at the time was in a joint-venture with Freeport where Freeport had the most to gain from the mine, a majority stake, it also bared the brunt of the accusations that faced the mine and it appears let Rio Tinto go for such long without being noted as a guilty partner. Mind you also that Rio Tinto is based in both Australia and the UK while Freeport is based out of the US.
b. If not the state the name and affiliation and home state of the complainant entity: None
4. Complaint
a. Action constituting violation: Significant environmental damage with the company’s joint venture in the Grasberg Mine with Freeport.
b. “Legal” basis of violation: The Council’s own guidelines.
5 Determination
a. Council recommendation (for example divest, retain, wait): Exclude
b. Legal basis for the determination: Environmental Damage
c. Underlying legal basis (Norwegian law, international treaty, customary international law principle, soft law standard, etc.): The Council cites international norms and the practices of like/similar companies in the sector (mining industry). Further the Council backs up its claim by saying the company is guilty of human rights violations in the 1990’s and tax evasion in 2002 in its operations around the world, but did not investigate.
6. Basis of Determination
a. standard of decision (rule or test etc.): The decision was reached taking into account the Freeport case and looking at MNC that are traded and based in the west, but operate in substandard (by western customs) conditions in Third World nations. These companies all have a history of taking part in massive violations to international norms in environmental stewardship.
b. Use of prior Ethics Council recommendations as precedent or as persuasive: Freeport (2 years prior)
c. Use of case law of other courts or bodies: None
d. Reliance on other materials (identify): The same sources used in the Freeport case were once again used. The Freeport case was used as a foundation for meeting the criteria of Rio Tinto and RT’s website was used against them when the Council looked at metal producing costs, but the Council produces no new environmental assessment.
e. Rationale: There was enough evidence to exclude the company on many clauses of environmental damage including polluting the water, ground, and air, tailing disposal, and having poor health effects on local inhabitants.
6.Recommendation of May 15, 2007 on exclusion of Vedanta Resources Plc, [06.11.2007].
1. Company subject to investigation
a. Name: Vedanta Resources http://www.vedantaresources.com/
b. form of organization (corporation, Partnership, etc.): Public Company
c. home country: U.K.
d. countries (exchanges) where shares are traded: LSE, FTSE
e. largest shareholders (individual, state owned enterprise, etc): Unknown
f. form of investment by the Norway SWF fund: Equity
2. Chronology
a. Date complaint filed: 2 October 2006
b. Date complaint resolved by the Ethics Council: 15 May 2007
3. Complainant
a. If the state, the office from which the reference was made: It appears that the Council reviewed the case and accusations against Vedanta Resources based on media hype, outrage from NGO’s, and a significant amount of evidence of atrocities based on subsidiaries of the company
b. If not the state the name and affiliation and home state of the complainant entity: More research is needed.
4. Complaint
a. Action constituting violation: “In several different contexts there have been allegations that Vedanta Resources has caused environmental damage and contributed to human rights and labour violations. With regard to its mining and industrial operations, the company has been accused of repeated breaches of national environmental legislation, illegal production expansions, irresponsible handling of hazardous waste, violations against tribal peoples, deplorable wages, and dangerous working conditions in the mines and factories. The company is also accused of being involved in bribery and corruption.
Many of the accusations have come to light in reports from non-governmental organizations such as the Indian People’s Tribunal on Environment and Human rights and the India Resource Centre. International organisations and NGO networks such as the India Committee of the Netherlands, Social Watch, and Mines and Communities have also reported on Vedanta’s alleged violations and unacceptable practices. A number of these allegations have been examined and documented by subcommittees appointed by the Indian Supreme Court” (Para. 2/3 Pg. 8). Further the Council finds that a pattern is emerging in the company’s violations
b. “Legal” basis of violation: In part legal standing in India along with international norms and customs.
5 Determination
a. Council recommendation (for example divest, retain, wait): Exclude
b. Legal basis for the determination: Environmental Damage, the Council does make note of human rights violations and lists it as a reason for exclusion, but does not make a separate case for these type of violations, but instead lists it along with the case for environmental damages.
c. Underlying legal basis (Norwegian law, international treaty, customary international law principle, soft law standard, etc.): The Council cites international norms and the practices of like/similar companies in the sector (mining industry), along with Indian law.
6. Basis of Determination
a. standard of decision (rule or test etc.): Freeport, but it was the first non-mining case
b. Use of prior Ethics Council recommendations as precedent or as persuasive: Freeport, but largely new
c. Use of case law of other courts or bodies: None
d. Reliance on other materials (identify): The Council references numerous organizations in their determination against Vedanta Resources including the company itself, governments, local people, and NGO’s. “The Council will make specific mention of the reports from the Indian Supreme Court Monitoring Committee on Hazardous Wastes and the Indian Supreme Court’s Central Empowered Committee. Both committees are appointed by the Indian Supreme Court. The Supreme Court Monitoring Committee on Hazardous Wastes (SCMC) was created in November 2003 to monitor the implementation of the regulations on hazardous waste and a series of orders issued by the Indian Supreme Court since 1995. The SCMC is an expert committee on waste and the environment, which reports to the Indian Supreme Court four times a year.1 The Central Empowered Committee (CEC) was established by the Supreme Court in May 2002 to investigate complaints relating to the Indian Forest Conservation Act and the Environmental Protection Act. The committee is made up of former judges and civil servants with special competence in the environmental field. The CEC shall give recommendations to the Supreme Court regarding violations of the law in specific cases. To date the CEC has submitted recommendations in 400 cases to the Supreme Court, all of which have been accepted. In addition to this, the Council has commissioned its own reports and studies by external Norwegian, British, and Indian consultants. Representatives from the Council’s secretariat have visited India and had several meetings with local organisations and individuals who have in-depth knowledge of Vedanta’s operations. Furthermore, the Council has gained access to letters and orders from Indian authorities to the company” (Para 5 Pg. 4).
e. Rationale: The Council choose to exclude the company due to its operation in India using domestic law as a supplement in what the Council viewed a significant breach in human rights and environmental law and practice.
7.Recommendation of August 24, 2006, on exclusion of DRD Gold Ltd., [11.04.2007].
1. Company subject to investigation
a. Name: DRD Gold Ltd. http://www.drd.co.za/
b. form of organization (corporation, Partnership, etc.): Public Company. Mines in question were operated under Emperor Mines (at the time a fully owned subsidiary).
c. home country: South Africa
d. countries (exchanges) where shares are traded: NASDAQ, JSE
e. largest shareholders (individual, state owned enterprise: Unknown
f. form of investment by the Norway SWF fund: Equity
2. Chronology
a. Date complaint filed: 4 October 2005
b. Date complaint resolved by the Ethics Council: 24 August 2006
3. Complainant
a. If the state, the office from which the reference was made: The company’s operations in Fiji and Papua New Guinea (PNG) have led to health problems for local inhabitants, damage to the river systems through mine tailing disposal, as well as air pollutants emitted (SO2 and heavy metals).
4. Complaint
a. Action constituting violation: Severe environmental damage through air, water, and ground pollution which has caused irreversible environmental and health effects.
b. “Legal” basis of violation: International norms, soft law, principles and customs of the industry.
5 Determination
a. Council recommendation (for example divest, retain, wait): Divest
b. Legal basis for the determination (reference to the section of the Ethics Standard invoked): The Council’s own guidelines and industry practices/standards.
c. Underlying legal basis: International principles and norms
6. Basis of Determination
a. standard of decision (rule or test etc.): The primary decision used for environmental damage coming from the Freeport case.
b. Use of prior Ethics Council recommendations as precedent or as persuasive: Freeport
c. Use of case law of other courts or bodies: None, there was a mention of a workers strike in Fiji due to poor working conditions in which an injunction was granted to keep the mine open and the strike declared illegal.
d. Reliance on other materials: Information obtained by the Council in its judgment came from local NGO’s, the PNG & Fiji Government’s, IO’s, and Oxfam Australia (2005-06). The Council states that facts were largely gathered by NGO’s and it is of interest to note that two heath surveys (1981 and 95) were never published by the UN in regards to facts found about the mines.
8. Recommendation of February 15, 2006 on exclusion of Freeport McMoRan Copper & Gold Inc., 15.02.2006]
1. Company subject to investigation
a. Name: Freeport McMoRan Copper & Gold http://www.fcx.com/
b. form of organization (corporation, Partnership, etc.): Public Company.
c. home country: U.S.
d. countries (exchanges) where shares are traded: NYSE
e. largest shareholders (individual, state owned enterprise, etc): STATE STREET CORPORATION, AXA, VANGUARD GROUP, INC. (THE), JP MORGAN CHASE & COMPANY, BlackRock Group Limited.
f. form of investment by the Norway SWF fund: Equity
2. Chronology
a. Date complaint filed: 4 October 2005
b. Date complaint resolved by the Ethics Council: 15 February 2006
3. Complainant
a. If the state, the office from which the reference was made: The main charges stem from Grasberg Mine in Papua, Indonesia in which the company is charged with acid rock damage through dumping tailing disposal into the local river systems. The Council made the decision as to whether to assess the company based on the Fund’s influence in environmental damage.
b. If not the state the name and affiliation and home state of the complainant entity: Much of the complaint is centered around facts and accusation gathered from NGO’s.
4. Complaint
a. Action constituting violation: Freeport is a significant case for all decision that will be made in the future about environmental damage. A complete and more detailed listing is attached below. The company was found to be in violation of environmental operations stemming from the Grasberg Mine. This mine contaminated entire water systems, gave off heavy metal pollution, affected the health of local inhabitants, and had effects which are irreversible.
b. “Legal” basis of violation: In part from environmental laws in Indonesia as well as European, American, and international practices.
5 Determination
a. Council recommendation (for example divest, retain, wait): Exclude
b. Legal basis for the determination: Environmental Damage
c. Underlying legal basis (Norwegian law, international treaty, customary international law principle, soft law standard, etc.): The Council cites international norms and the practices of like/similar companies in the sector (mining industry. IN the Freeport case the Council also set seven criteria which must be met for environmental exclusion, see below.
6. Basis of Determination
a. standard of decision (rule or test etc.): New type of exclusion from the Fund.
b. Use of prior Ethics Council recommendations as precedent or as persuasive: First of its kind
c. Use of case law of other courts or bodies: None
d. Reliance on other materials (identify): While at the time of the Council’s report the EU was working on a first of its kind guidance on waste management, much of the criteria that he Council used were made up. The sources of the findings for Council were collected from various NGO’s such as Friends of Earth, Jatam, The Mineral Policy Institute, and Global Witness with other organizations mentioned as outlying sources of information: UNESCO, OPIC, SEC, the World Heritage Site. Other information was collected by statements from Freeport to the Council and other postings on their website, along with data collected from agencies within the Indonesian Government.
e. Rationale: There was enough evidence to exclude the company on many clauses of environmental damage including polluting the water, ground, and air, tailing disposal, and having poor health effects on local inhabitants.
Principles that the Council created in light of Freeport.
There was little basis for the Council to go off of in makings its decision, nearly all of the foundation for the ruling was what the Council made up, attempting as best they could utilize international norms and practice. “The severity of environmental damage may be assessed in different ways, depending on the affected area’s present or future functions, and whether economic, ecological, social or other values are given primary importance. Interventions in natural areas may often lead to the loss of ecological heritage for present and future generations. The question is whether this might be acceptable if the profits or social gains the intervention yields outweigh the benefits of preserving the area (Para. 3 Pg. 7)… “exclusion should be limited to the most serious cases where the company in which the Petroleum Fund has invested is directly responsible for unacceptable breaches of standards, and there are no expectations that the practices will be discontinued…whether the damage is a result of illegal actions, whether it is related to a systematic practice, whether it is planned, or whether it has escalated because of the company’s attempts to conceal its actions”. Further “Illegal actions may be understood as acts contrary to national laws and international treaties and norms” (Para. 5 Pg. 8), with all of this being said this is one of the best definitions for terms of exclusion seen by the Council. It gives leniency, legitimacy, and draws its conclusions from both national and international law, as well and international norms and most important the judgment and motives that the Council is attempting to grasp. For further explanation I would advise reading all of Pages 7 and 8 of the Council’s decision. The Council does recognize that companies are not obligated by international law to comply to standards and norms, instead it is left up to applicable parties (i.e. investors) and the nation in which the company operates to enforce protective rules and measures “International law, including international environmental agreements, does not place legal obligations on private companies, and companies can therefore not be accused of violating international law. However, several conventions set international standards for the protection of the natural environment and human life and health. In the environmental field, there are also international guidelines (for example within the EU) indicating best practice or best technology within different sectors with reference to pollution reduction, waste management, energy and resource use. Consequently, the Council regards international law and standards as normative also for companies’ activities, especially in States with inadequate environmental legislation or ineffective enforcement, and where companies take advantage of this to avoid investing in environmental measures. The extent to which companies exploit weak environmental regulations in a country must, however, be evaluated on an individual basis. It is not necessarily reasonable to apply Norwegian or Western environmental standards in all situations. At the same time, lenient legislation in a country does not automatically justify a heavy environmental burden if the damage is considerable” (Para. 7 Pg. 8). “According to NOU 2003:22 it is relevant to consider environmental damage on the grounds of what can reasonably be expected from companies in terms of environmental responsibility” (Para. 2 Pg. 9).
All of this demonstrates that since the company is immune to international law, at least in it enforceability, since Indonesia is doing nothing to stop Freeport, and while the Council has no other means to exclude Freeport, it is doing so and setting precedence for any other type of violation of that kind. The Council attempts to rationalize the exclusion through seven fundamental criteria which must be met for exclusion of a company under environmental factors:
- The damage is significant.
- The damage causes irreversible or long-term effects.
- The damage has considerable negative consequences for human life and health.
- The damage is the result of violations of national law or international norms.
- The company has failed to act in order to prevent damage.
- The company has not implemented adequate measures to rectify the damage.
- It is probable that the company’s unacceptable practice will continue.
The Grasberg Mine is owned by PT Freeport Indonesia (a subsidiary of Freeport McMoRan) which has a 90.64% stake, the remaining owner is the Indonesian State which has a 9.36% share of the mine. This shows a direct link between the well-being of the state and that of the mine, with the possibility that the revenue from the mine takes priority over the people on the island, or at least this is what the Council is accusing Indonesia of in their judgment. International law is incorporated in various statements that the Council uses “the allegation...focus mainly on…tailing disposal, a practice internationally regarded as unacceptable” (Para. 4 Pg. 10). There is at least one case where “Freeport is accused of not having compensated the local population sufficiently for damage inflicted” (Para. 4 Pg. 10) showing that is it not always clear if Freeport is operating the confines of Indonesian law, though government subordination is stated with “allegations concerning human rights violations are primarily connected to Freeport’s cooperation with the Indonesian military, which have been hired as security forces and protected the mining area since the 1970’s…including killings, torture, and abuses in and around Freeport’s accession area” (Para. 5 Pg. 10). As is the case with Burma this is noted to show a direct link between the Ethical Guidelines being broken and active participation in atrocities by the state, but the Council does nothing to divest interests in the state, not does it investigate.
Reports and statements from the Indonesian Ministry of the Environment show little or no life in the rivers and say the rivers “are unfit for aquatic life” (Para. 3 Pg. 14). Through all of this the company now says that it meets government regulation and the government still supports the mine. It can be extracted that Freeport, being a western company based in the US, is facing all the consequences instead of the Indonesian state which can be seen as equally guilty, but is not facing any accusations from the Council. More research is needed to see if there are bias between rulings in companies that operate in the region and their home countries.
Sources: The main sources of law are international norms and standards that the Council chooses to apply. This comes from international protocols and accepted practices from within mining sector. While at the time of the Council’s report the EU was working on a first of its kind guidance on waste management, much of the criteria that he Council used were made up. The sources of the findings for Council were collected from various NGO’s such as Friends of Earth, Jatam, The Mineral Policy Institute, and Global Witness with other organizations mentioned as outlying sources of information: UNESCO, OPIC, SEC, the World Heritage Site. Other information was collected by statements from Freeport to the Council and other postings on their website, along with data collected from agencies within the Indonesian Government.
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