Part VI: Developing a Coherent Transnational Jurisprudence of Ethical Investing: The Norwegian Sovereign Wealth Fund Ethics Council Model

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 VI of the series.

Landmines are laid out after being turned in at an Iraqi police station in 2004.

Part VI: Ethics and a Jurisprudence of Responsible Investment:  The Cases--

I.  Products
    1. Weapons production
        a.  land mines

There are two principle determinations, one from the predecessor body, the Petroleum Fund Advisory Commission on International Law (PFACIL), and the other by the Ethics Council.  

1.  Question of whether investments in Singapore Technologies Engineering can imply a violation of Norway’s international obligations. The Petroleum Fund Advisory Commission on International Law

Oslo 22.03.2002, Memorandum to the Ministry of Finance. ("Singapore Technologies").

2.  Recommendation of September 20, 2005 concerning whether the weapons systems Spider and Intelligent Munition System (IMS) might be contrary to international law. Letter to the Ministry of Finance from the Advisory Council on Ethics [20.09.2005] (Spider & Intelligent Munitions").

Summary:  Both opinions focused on the liability of the Norwegian state for the production of goods that might violate international law directly applicable to Norway.  From a jurisprudential perspective, the most important portion of the cases was the adoption of a rule of precedent for questions of law--in this case that investments in companies that produce landmines can constitute a violation of international law. The Ethics Council took the determination of the PFACIL as authoritative for its own determination of a similar question. The critical standard for the application of precedent was the acceptance by the Finance Ministry.

Int’l non-governmental coalition launches campaign to divest ST Engineering of $1 billion, Online Citizen, May 27, 2010.

The Singapore Technologies determinations considered a number of questions of law and  the interpretation of the meaning of treaties.  The basis of the analysis  was the relevant treaty text.  The focus was on the interpretation of the prohibitions of the 1997 Ottawa Treaty (Convention on the Prohibition of the Use, Stockpiling, Production and Transfer of Anti-Personnel Mines and on their Destruction).  A rule of broad interpretation of the prohibitions was adopted, implied from the broad language of the treaty text.  The actual production of the land mines was not deemed prohibited under international law because Singapore was not a party to the treaty.  But the PFACIL read the Treaty as including broad complicity provisions.  Applying its interpretation of the complicity provisions to the state and its use of the NSWF, the PFACIL determined that Norway (and thus the NSWF) as a signatory had distinct obligations that extended to its decisions to make investments through private markets.  The determination essentially disregarded the nature of the transactions--private market transactions in corporations operating legally in the places where it was active--and treated the investment as an act of state to which the public obligaitons of Norway apply.  This is an approach applied by the European Court of Justice as well as a matter of interpreting the legal obligations of Member States under the European Union/Communities Treaties.  See, Larry Catá Backer, The Private Law of Public Law: Public Authorities as Shareholders, Golden Shares, Sovereign Wealth Funds, and the Public Law Element in Private Choice of Law. Tulane Law Review, Vol. 82, No. 1, 2008.

Defense Industry Daily  July 7, 2006 (Joint venture partners Alliant Techsystems Inc. (ATK) in Plymouth, MN and Textron Systems Corp. in Wilmington, MA received a $31.1 million firm-fixed-price and cost-plus-incentive-fee contract for the Spider XM-7 Landmine System).

The Spider & Intelligent Munitions case focused on three companies  General Dynamic Corp., Alliant Techsystems, and Textron Inc.  There are three cases, all written up in the same recommendation,  dealing with exclusion of companies based on the production of anti-personnel land mines, but it is important to note that no company has actually been excluded on that basis. General Dynamics and Alliant Techsystems were already excluded form the Fund on different types of exclusion. The companies of General Dynamic Corp., Alliant Techsystems, and Textron Inc. are all based in the U.S. and were found by the Council not to be in violation of the 1997 Ottawa Treaty (Convention on the Prohibition of the Use, Stockpiling, Production and Transfer of Anti-Personnel Mines and on their Destruction). Since the companies were proven to be manufacturing armaments that under some interpretations might be considered anti-personnel land mines and in their fundamental nature violate human rights, these companies were put under evaluation. The key principle which allows for their weapons systems to be accepted by the NSWF is that they are equipped with an enhancement where the mine can only be detonated from a human observer. Typically land mines go off once the pressure of a person or vehicle sets them off, but the weapon systems that General Dynamics, Alliant, and Textron produce are made to where an opposing force must physically set it off from a safe distance away. The Council does note that is this system was modified or eliminated and detonation would no longer require the attention of a person, then these companies would be excluded on the grounds of anti-personnel land mines. The Council does also say that it expects the only companies to be excluded from the fund to originate from states that have not ratified the Ottawa Convention (i.e. the U.S.). Finally in the case of land mines the Council uses its interpretation of international law, mainly that of the Ottawa Treaty as grounds for exclusion.

 Another Use Of Rats – Land Mine Detection & Tuberculosis Detection…WoW !!! Feb. 9, 2010. The story comes from Mozambique, Africa, where the rats are used to detect unexploded land mines.

Case Summaries:

1.  Question of whether investments in Singapore Technologies Engineering can imply a violation of Norway’s international obligations. The Petroleum Fund Advisory Commission on International Law

Oslo 22.03.2002, Memorandum to the Ministry of Finance. ("Singapore Technologies").

1.  Company subject to investigation
a. Name: Singapore Technologies Engineering http://www.stengg.com/home/home.aspx
b. form of organization (corporation, Partnership, etc.):  Public company
    c. home country: Singapore
    d. countries (exchanges) where shares are traded:  SGX
e. largest shareholders (individual, state owned enterprise: Unknown
f. form of investment by the Norway SWF fund: Unknown

2.  Chronology
    a. Date complaint filed: 7 January 2001
    b. Date complaint resolved by the Ethics Council: 22 March 2002

3.  Complainant
a.  If the state, the office from which the reference was made: “Reference is made to the letter from the Ministry of Finance dated 7 January 2001, where the Ministry of Finance requests the Petroleum Fund Advisory Commission on International Law (the Advisory Commission) to “consider whether investments in the company Singapore Technologies Engineering can imply a violation of Norway’s international obligations”(Para. 1 Pg. 1).

4. Complain
a. Action constituting violation: Production of anti-personnel land mines in violation of the 1997 Ottawa Treaty of which Norway is a signature of but not Singapore.
b.  “Legal” basis of violation: Ottawa treaty Articles (1)(b) and 1(1)(c)

5  Determination
a.  Council recommendation (for example divest, retain, wait): Exclusion
b.  Legal basis for the determination (reference to the section of the Ethics Standard invoked): The Council found that there was an unacceptable risk to contributing to the manufacturing of land mines by retaining its investment in Singapore Technologies, which under certain interpretations of the Ottawa Treaty as well as Norwegian Law is illegal
c.  Underlying legal basis: International law

6.  Basis of Determination
a.  standard of decision (rule or test etc.): None
    b.  Use of prior Ethics Council recommendations as precedent or as persuasive: None
c.  Use of case law of other courts or bodies: None
d.  Reliance on other materials: The Ottawa Treaty and International Campaign to Ban Landmines (ICBL)
e.  Rationale: The company is in production of weapons that the Council views to be in violation of their ethical guidelines.

* Important thing to note: “The question as to whether assistance in violation of the convention also could be covered by the Norwegian implementation law (law of 17 July 1998, no.54) falls outside the scope of the question set forth by the Ministry of Finance which specifically concerns whether Norway, through investments by the Petroleum Fund, could possibly violate international legal obligations” (Final Paragraph).

2.  Recommendation of September 20, 2005 concerning whether the weapons systems Spider and Intelligent Munition System (IMS) might be contrary to international law. Letter to the Ministry of Finance from the Advisory Council on Ethics [20.09.2005] (Spider & Intelligent Munitions").

1. Companies subject to investigation

I.  Company subject to investigation
    a. Name:a. Name: Alliant Techsystems
b. form of organization (corporation, Partnership, etc.): Public company (systems in question were in joint-venture for development of products with Alliant, General Dynamics, and Textron
c. home country: USA
d. countries (exchanges) where shares are traded: NYSE
e. largest shareholders (individual, state owned enterprise: First Eagle Investment Management, LLC, FMR LLC, BlackRock Institutional Trust Company, N.A., NEUBERGER BERMAN GROUP, LLC, GOLDMAN SACHS GROUP INC
f. form of investment by the Norway SWF fund: Equity (Previously excluded)

II.  Company subject to investigation
    a. Name: General Dynamics Corp. 
b. form of organization (corporation, Partnership, etc.):  Public company (systems in question  were in joint-venture for development of products with Alliant and Textron
    c. home country: USA
    d. countries (exchanges) where shares are traded:  NYSE
e. largest sahreholders (individual, state owned enterprise: Longview Asset Management, LLC, Capital Research Global Investors, Capital World Investors, VANGUARD GROUP, INC. (THE), STATE STREET CORPORATION
    f. form of investment by the Norway SWF fund: Equity (Previously excluded)

III.  Company subject to investigation
    a. Name: Textron Inc.. 
b. form of organization (corporation, Partnership, etc.):  Public company (systems in question  were in joint-venture for development of products with Alliant, General Dynamics, and Textron
    c. home country: USA
    d. countries (exchanges) where shares are traded:  NYSE
e. largest shareholders (individual, state owned enterprise: FMR LLC (Fidelity), Bank of New York Mellon Corporation, WELLINGTON MANAGEMENT COMPANY, LL, VANGUARD GROUP, INC. (THE), PRICE (T.ROWE) ASSOCIATES INC
    f. form of investment by the Norway SWF fund: Equity

2. Chronology
a. Date complaint filed: 31 August 2005
b. Date complaint resolved by the Ethics Council: 20 September 2005

3. Complainant
a. If the state, the office from which the reference was made: Ministry of Finance

4. Complaint
a. Action constituting violation: Production of Anti-Personnel landmines.
b. “Legal” basis of violation: “The Advisory Council finds that all weapon systems that are designed in such a manner that explosive charges are detonated by the presence, proximity or contact of a person, will fall within the definition of an antipersonnel land mine as laid down in Article 2 of the Convention…This development (remote activated landmines) thus seems not to have been in violation of the Convention (Para. 1&2 Pg.5)

5 Determination
a. Council recommendation (for example divest, retain, wait): Remain excluded for other violations of the Ethics Council (cluster munitions).
b. Legal basis for the determination (reference to the section of the Ethics Standard invoked). Article 2 of the Ottawa Convention.
c. Underlying legal basis: International law from the Convention of which Norway is a signature of but not the U.S.

6. Basis of Determination
a. standard of decision (rule or test etc.): First and only of its kind in the anti-personnel landmine area.
b. Use of prior Ethics Council recommendations as precedent or as persuasive: None
c. Use of case law of other courts or bodies: None, enforcement of the Ottawa Convention is reliant on the individual states to enforce, as of the time of the report, no violations were noted by the Council.
d. Reliance on other materials: The Council relied heavily on the product listings that came directly from the company as well as the Ottawa Convention, U.S. Department of Defense, and the NGO Human Rights Watch (HRW).
e. Rationale: “If a decision is made to equip the weapons systems Spider or IMS with a “battlefield override” feature, or in other ways equip them in such a manner that they fall within the definition of an antipersonnel mine, the Advisory Council is going to recommend exclusion of
Textron Systems”(Para 3 Pg.5). The other two companies are excluded due to their production of cluster munitions.