Part VIII: 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 VIII of the series.

Nuclear weapons: Explosion over Bikini Atoll Photograph: U.S. Department of Energy-Nevada/Corbis, Nuclear weapons: how many are there in 2009 and who has them?, The Guardian UK, Sept. 6, 2009.

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

I.  Products
    1. Weapons production
        c.  nuclear arms

There is one principle determination:

BAE Systems Plc., Boeing Co., Finmeccanica Sp.A., Honeywell International Inc., Northrop Grumman Corp., United Technologies Corp., Safran SA, Recommendation of 19 Sept. 2005 (exclusion Jan. 1, 2006).
The press release from the Ministry of FinanceThe recommendation from the Council on Ethics

Summary:  

Exclusion based on the production of nuclear components is relatively straightforward. There is little formal law directly relating to the control of nuclear weapons outside of the Nuclear Non-Proliferation Treaty of 1970 and the International Atomic Energy Agency architecture.  the Council states that all companies that are involved in manufacturing weapons and articles that are only used in nuclear weapons shall be excluded regardless of the nation or origin. For the first listing of exclusions in September 2005 the Council lists specific criteria which must be met, similar to what is did for environmental damages, which give a non-exhaustive list and framework for the Council to self-reference. Further the Council makes note that while these companies operate in complete domestic and international compliance they are still producing weapons that from within their normal function violate fundamental human rights through their massive destruction when detonated. The Council does also reference NOU 22:2003 as put out by the Norwegian parliament.

    It is important to note that the Ethics Council interpreted the Ethics Guidelines to permit it a broad scope to determine exclusion and much leeway in the decisions they make. But the Ethics Council has tended to hit "high value" targets with its discretionary authority.  Thus far the Council has only excluded companies in the UK, France, Italy, and US leaving questions as to why they have not excluded companies that were based in other nuclear states--Russia, China, India, or Pakistan--or states working toward or which might have nuclear arms capacity--Iran, and Israel.  Nor has the Ethics Council sought to exclude on the basis of participation in the supply chain relevant to nuclear arms production, and in the maintenance of nuclear weapons systems of the weapons that carry the systems.  This despite the reliance on the Norwegian Government whitepaper onethical guidelines (NOU 22: 2003), and through the subsequent discussions of the guidelines in Parliament it was decided that the Fund shall not invest in companies that “ develop and produce key components to nuclear weapons”. Further the Council does quote the Geneva Convention, but in part out of context and mainly dealing with certain applicable definitions. The effect is to suggest that while this determination is clothed in the language and forms of law and produced through a quasi judicial process, the choice of companies suggests political discretion in the service of the foreign policy (and perhaps even the internal political objectives) of the government.  

Mark 6 nuclear bomb similar to the one the United States Air Force inadvertently dropped on the Gregg family's garden in Mars Bluff, South Carolina.  Document Friday: “Narrative summaries of Accidents Involving Nuclear Weapons.” Unredacted, April 2, 2010

Case Summary:

BAE Systems Plc., Boeing Co., Finmeccanica Sp.A., Honeywell International Inc., Northrop Grumman Corp., United Technologies Corp., Safran SA, Recommendation of 19 Sept. 2005 (exclusion Jan. 1, 2006).

 1.  Company subject to investigation

 I.  Company subject to investigation
    a. Name: BAE Systems Inc. http://www.baesystems.com/
b. form of organization (corporation, Partnership, etc.):  Public company
    c. home country: UK
    d. countries (exchanges) where shares are traded:  LSE
e. largest shareholders (individual, state owned enterprise: Unknown
f. form of investment by the Norway SWF fund: Unknown

II.  Company subject to investigation
    a. Name: Boeing Co.  http://www.boeing.com/
b. form of organization (corporation, Partnership, etc.):  Public company
    c. home country: USA
    d. countries (exchanges) where shares are traded:  NYSE, DOW, S&P
e. largest shareholders (individual, state owned enterprise: Capital World Investors, STATE STREET CORPORATION, VANGUARD GROUP, INC. (THE), BlackRock Institutional Trust Company, N.A., FMR LLC.
f. form of investment by the Norway SWF fund: Unknown

III.  Company subject to investigation
    a. Name: Finmeccanica Sp.A. http://www.finmeccanica.it/Corporate/EN/index.sdo
b. form of organization (corporation, Partnership, etc.):  Public company
    c. home country: Italy
    d. countries (exchanges) where shares are traded:  BIT
e. largest shareholders (individual, state owned enterprise: Unknown
f. form of investment by the Norway SWF fund: Unknown

 IV.  Company subject to investigation
    a. Name: Honeywell International Inc. http://honeywell.com/Pages/Home.aspx
b. form of organization (corporation, Partnership, etc.):  Public company
    c. home country: USA
    d. countries (exchanges) where shares are traded:  NYSE
e. largest shareholders (individual, state owned enterprise: VANGUARD GROUP, INC. (THE), Capital World Investors, BARROW, HANLEY MEWHINNEY & STRAUSS, INC., MASSACHUSETTS FINANCIAL SERVICES CO – OTHER, BlackRock Institutional Trust Company, N.A..
f. form of investment by the Norway SWF fund: Unknown

 V.  Company subject to investigation
    a. Name: Northrop Grumman Corp. http://www.northropgrumman.com/
b. form of organization (corporation, Partnership, etc.):  Public company
    c. home country: USA
    d. countries (exchanges) where shares are traded:  NYSE
e. largest shareholders (individual, state owned enterprise: Capital World Investors, AXA, MASSACHUSETTS FINANCIAL SERVICES CO – OTHER, VANGUARD GROUP, INC. (THE), BlackRock Institutional Trust Company, N.A..
f. form of investment by the Norway SWF fund: Unknown

VI.  Company subject to investigation
    a. Name: United Technologies Corp. http://www.utc.com/Home
b. form of organization (corporation, Partnership, etc.):  Public company
    c. home country: USA
    d. countries (exchanges) where shares are traded:  NYSE, DOW
e. largest shareholders (individual, state owned enterprise: Capital Research Global Investors, VANGUARD GROUP, INC. (THE), Capital World Investors, FMR LLC, BlackRock Institutional Trust Company, N.A.
f. form of investment by the Norway SWF fund: Unknown

 VII.  Company subject to investigation
    a. Name: Safran SA http://safran-group.com/spip.php?lang=en
b. form of organization (corporation, Partnership, etc.):  Public company
    c. home country: France
    d. countries (exchanges) where shares are traded:  Euronext
e. largest shareholders (individual, state owned enterprise: Unknown
f. form of investment by the Norway SWF fund: Unknown

2.  Chronology
    a. Date complaint filed: Unknown
    b. Date complaint resolved by the Ethics Council: 19 September 2005

3.  Complainant
a.  If the state, the office from which the reference was made:  “subsequent discussions of the guidelines in Parliament” (Para. 3 Pg. 1) from which the decision to exclude companies based on their production of nuclear weapons and components.

4. Complaint
a. Action constituting violation:” BAE Systems Plc, Finmeccanica SpA and EADS have together formed the joint venture MBDA. The ownership structure, according to EADS’ homepage, is 37,5% BAE, 37,5 % EADS and 25% Finmeccanica. This is also confirmed on the homepages of BAE Systems and Finmeccanica” (Para. 4 Pg. 6). EADS is already excluded from the fund.
b.  “Legal” basis of violation: NOU 22:2003 and Ethics Council interpretive standards

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): According to the Treaty on the Non-Proliferation of Nuclear Weapons (NPT), nuclear weapons are weapons of mass destruction that are illegal for most states to possess. The five so-called nuclear states (USA, UK, France, Russia and China) are, for historical reasons that will not be discussed here, exempted from this ban. It can also be assumed that India, Pakistan and Israel have developed nuclear weapons” (Para. 5 Pg. 1)
c.  Underlying legal basis: International customary law as well as the guidance of the Norwegian Parliament, it appears that the Council is largely creating its own legal basis.

6.  Basis of Determination
a.  standard of decision (rule or test etc.): New, first of its kind
    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:  Companies’ internet web-sites have been searched as well as databases of Jane’s Information Group. In addition, information has been acquired from the Norwegian Defence Research Establishment (FFI) and from the Ministry of Foreign Affairs, the Geneva Convention, and CBS.
e.  Rationale: While nuclear weapons can be geared toward use on military targets, due to their massive area of destruction the use of them can adversely affect civilian populations. The production of these indiscriminately weapons, as grounds for exclusion, are limited to ICBM’s, SLBM’s, missile upgrades, and the illegal trade of.