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 IX of the series.
Part IX: Ethics and a Jurisprudence of Responsible Investment: The Cases--
I. Products
2. Weapons Sales to States
a. Burma
There are two principle determinations:2. Weapons Sales to States
a. Burma
1. Recommendation of 14 November 2005, Total S.A.
2. Recommendation of November 14, 2008, on exclusion of the company Dongfeng Motor Group Co. Ltd., [13.03.2009]
Summary: The Burma exclusion determinations show the Ethics Council at its most ambiguous. It appears that the Council is taking inconsistent positions. The touchstone of the Ethics Council determination is the application of a high threshold complicity standard (ethical guidelines paragraph 4.4, second sentence, first alternative ). Specifically, the Ethics Council is seeking to deepen its standard that the Fund should avoid indirect complicity in Ethics Guidelines violations through its inclusion within the Fund's investment universe of companies that might appear to be complicit in Ethics Guidelines violations or companies that are more directly participating in actions of the Myanmar government That might suggest a broad range of companies potentially subject to exclusion, especially if it is determined that any support of the current Myanmar government contributes to the human rights and other violations of the regime. Yet the only company to be directly excluded from the Fund is Dongfeng based in South Korea. In that case, the exclusion was based on a determination by the Ethics Council to adopt as part of the Ethics Guidelines the embargo on sale of "arms and military equipment" to Burma imposed by the United States and the European Union, In this case, the Ehtics Council essentially translated embargo into Norwegian regulatory standards.
On the other hand, the Ethics Council has noted that over 20 companies from East Asia and Europe have been examined for their participation with the Burmese Government, these are mainly oil, gas, banking, and pharmaceutical companies and they have all found to not be in violation with the Council. The Ethics Council suggests a two part regulatory test to apply to exclusion for economic activity other than the sale of military goods and arms. "First, there must be a connection between the company’s operations and the relevant violations. Second, there must be an unacceptable risk for the company, and thus also, for the Fund, of contributing to future violations." The object is to provide a basis for avoiding exclusion of companies that do business in countries controlled by governments that may violate human rights or other international obligations that may bind either the host state or Norway. The result is a very narrow standard for exclusion, grounded in a high threshold for finding complicity in state action by companies (and thus the indirect complicity of the Norwegian state through the Fund) but a narrowness that is then belied by an expansive application of similar standards in other regions--for example the Middle East. Compare Africa Israel Investments Ltd. Nov. 16, 2009.
The Council thus assumes that the fact that a company has operations in states controlled by repressive regimes does not, in itself, constitute sufficient grounds to exclude a company from the Fund. Even though it can be inferred that the presence of a company generates revenues for the repressive regime and thereby contributes to uphold it, such a connection between a company and the state’s unethical actions would not, in itself, be sufficient to exclude a company from the Fund. This applies regardless of where companies operate, including in Burma Regarding the Fund’s investment in companies with operations in Burma, the Council notes that there are no direct investments in Burmese companies. However, the Council is aware of at least 20 companies in the Fund’s portfolio which have, or are in negotiations to have, operations of some extent in Burma.More importantly, the Ethics Council refined its standard by distinguishing "precedent" in the form of prior decisions in related cases involving companies excluded as a result of operations in states where the regime arguably violated human rights. See Pia Rudolfsson Goyer, Can the Norwegian Government Pensions Fund-Global be used to promote human rights? If so, how? Thus, selling arms is grounds for exclusion, but providing petroleum for vehicles, including military vehicles, is not. Accord Ethics Council, Letter dated May 15, 2006, regarding investments connected to the Middle East. Yet the Ethics Council also suggested that it might use the two part standard in the future against companies on a broader reading of its standard. The Council included in its suggestion of broader application companies such as PetroChina Co. Ltd. for a “possible” construction of an oil pipeline between China and Burma, as well as Daewoo for setting up an arms manufacturing plant in Burma. It has suggested that “If, however, a company violates national law by illegally selling weapon technology to a suppressive regime, this may be viewed as a serious violation of fundamental ethical norms, and thus fall inside the last section of the Fund’s ethical guidelines.” But the Ethics Council has yet to make a determination that applies this principle. Finally the Council concludes “The Council has reason to believe that companies in the Fund’s portfolio may be involved in construction of hydro electric power plants in Burma. Such projects have previously been known to lead to forced displacement of people and to forced labour. Also, the Council is informed that mining companies in the Fund’s portfolio may have operations in Burma. It must be assumed that conditions related to mining in Burma can be severe, both in terms of environmental aspects, working conditions and effects on livelihood for the population in proximity of the mines. Nor can it be ruled out that forced labour is used, either in the mining operations themselves or when clearing areas for new mines. The Council’s work on information gathering on these topics continues”, this assessment was written in 2007 and thus far no companies have been excluded.
There have been numerous companies that have been allowed to remain int he investment universe of the Fund, but the one of most prominence is Total SA (France). The company was allowed to stay included in the Fund because no clear link had been found between the company’s operations and support of the Burmese Military, which appears to be the touchstone of the Council's application of its standard, a touchstone that makes exclusion much harder. Thus ion that basis the Council has yet to find plausible as a basis for exclusion evidence provided by many NGO’s and others that Total is had been aiding the rebel government’s attacks on people who live in the pipeline region. While Total does not manufacture arms for either side of the war, they do pay for security of the pipeline and for what appears to be the elimination of opposition to the construction of the pipeline.
Myanmar bought 4,000 of the above Dongfeng EQ1093 in 1992. From The Burmese Democracy Movement and the Dongfeng Truck, Tamerlane's Thoughts, Wednesday, October 03, 2007
Case Summary:
Recommendation of 14 November 2005, Total S.A.
1. Company subject to investigation
a. Name: Total SA http://www.total.com/en/home-page-940596.html
b. form of organization: Public.
c. home country: France
d. countries (exchanges) where shares are traded: Euronext, NYSE
e. largest shareholders (individual, state owned enterprise: WELLINGTON MANAGEMENT COMPANY, LLP, Allianz Global Investors of America L.P., Capital World Investors, MASSACHUSETTS FINANCIAL SERVICES CO – OTHER, FISHER INVESTMENTS, INC.
f. form of investment by the Norway SWF fund: Equity & Fixed-Income (Bonds)
2. Chronology
a. Date complaint filed: 13 April 2005
b. Date complaint resolved by the Ethics Council: 14 November 2005
3. Complainant
a. If the state, the office from which the reference was made: The complaint was brought to the attention of the Council because of the concern shared by numerous NGO’s and the attention that they played to the government and public. The complaint was filed on behalf of the Minister of Finance, but the Council notes Earth Rights International (US), Burma Campaign UK (British), La Fédération des droits de l’Homme (French), and The Norwegian Burma Committee as being pivotal in the case.
4. Complaint
a. Action constituting violation: Constructing oil pipelines (Yadas Gas Pipeline) in rebel controlled parts of the country in which the funds form the pipeline go towards, in part, the belligerents that are responsible for genocide.
b. “Legal” basis of violation: “It follows from this that the fund shall not invest in companies which sell
weapons or military equipment to Burma” (Para. 2 Pg. 2).
5 Determination
a. Council recommendation (for example divest, retain, wait): Retain
b. Legal basis for the determination (reference to the section of the Ethics Standard invoked): Following international norms already established by the EU, US, WB, and IMF, and then the Council cites itself in its ability to deny and include investment.
c. Underlying legal basis: There is no international law on Burma, but most western nations have varying degree of sanctions/embargos against the nation.
6. Basis of Determination
a. standard of decision (rule or test etc.): 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: Earth Rights, UN, WB, IMF, Burma Campaign (UK), Total SA, and Amnesty International.
e. Rationale: It was the decision of the Council to maintain investment because there was clear link between the Fund’s investments in Total, and its subsequent effects in feeding the military. All of this comes despite warnings from numerous NGO’s as well as IO’s such as the UN, IMF, and WB. While this ruling in part is contrary to what would be expected and possibly against their own guidelines, there is little that can be done to refute the decision of the Council because the foundation and basis of the Ethical guidelines is self-referencing and judgments can be varying, conflicting, and the Committee reserves the right to have leniency, even more so when no national or international law is present.
Recommendation of November 14, 2008, on exclusion of the company Dongfeng Motor Group Co. Ltd., [13.03.2009]
1. Company subject to investigation
a. Name: Dongfeng Motor Company Ltd. http://www.dfl.com.cn/dfl/webmap_en.aspx
b. form of organization Public, is with many joint-ventures with other companies.
c. home country: China (PRC)
d. countries (exchanges) where shares are traded: SEHK (Hong Kong)
e. largest shareholders (individual, state owned enterprise: Unknown
f. form of investment by the Norway SWF fund: Equity
2. Chronology
a. Date complaint filed: 3 October 2008
b. Date complaint resolved by the Ethics Council: 14 November 2008
3. Complainant
a. If the state, the office from which the reference was made: Ministry of Finance
4. Complaint
a. Action constituting violation: Selling armored trucks to the Burmese Military.
b. “Legal” basis of violation: “It follows from this that the fund shall not invest in companies which sell
weapons or military equipment to Burma” (Para. 2 Pg. 2).
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): Following international norms already established by the EU, US, WB, and IMF, and then the Council cites itself in its ability to deny investment based on complicity in dealing with the Burmese Military.
c. Underlying legal basis: There is no international law on Burma, but most western nations have varying degree of sanctions/embargos against the nation.
6. Basis of Determination
a. standard of decision (rule or test etc.): Total SA
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 US, EU, WB, and IMF
e. Rationale: The conclusion of the Council was to exclude the company on the basis of supplying trucks which had been modified to hold weapons systems to the Burmese military. Looking at the similar, but different, criteria for the US and EU arms embargoes, the Council made the decision to exclude the company. Since the Council had no real foundation on which to make its basis it acted on the principles of these two governments for legitimacy.
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