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Today, Norges Bank made public its decision to exclude Yunnan Baiyao Group Co Ltd from the GPFG and to place Marfrig Global Foods SA under observation, following recommendations by the Council on Ethics.
Yunnan Baiyao is a Chinese pharmaceutical company which produces ingredients used in Traditional Chinese Medicine (TCM). The company uses and sells body parts from pangolins which is a globally endangered species. The use of threatened animal species in TCM products may contribute to illegal wildlife trade and increases the risk to of these species becoming extinct. Please find the Council's recommendation to exclude Yunnan Baiyao from the Fund here.The Council has recommended that Marfrig Global Foods SA be placed under observation due to the risk that the company is contributing to severe environmental damage.
Marfrig is one of Brazil’s largest producers of beef. The company purchases beef cattle, which it slaughters and processes for sale in the national and international market. Marfrig buys cattle in several regions, the most important of which are the Amazon and the Cerrado. Cattle ranching is the main reason for the loss of forest cover and biodiversity in these regions and is linked to conversion of forest to pastureland. In 2020, Marfrig announced that the company would eliminate deforestation throughout its entire supply chain and in all regions by 2030. Even though the Council finds that the timeframe for when this will be achieved is too long and it is unclear how Marfrig’s system will work in practice, the Council considers that these initiatives can reduce the risk of Marfrig contributing to deforestation in the future. Please find the Council's recommendation to place Marfrig Global Foods under observation here.The two actions are not remarkable from the perspective of the work of either the Ethics Council or Norges Bank. What is of interest is the way in which the decisions nicely expose the regulatory thrust of the sustainability focus of the decisions.
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The second suggests a more administrative thrust. Here the Ethics Council and Norges Bank fill the role of judge the exercise of administrative discretion by a governmentalized private economic collective. In this case, the object is the chiding over the timeline for eliminating deforesting practices in cattle production in Brazil. Here the object is accountability as well as a reminder that acts of administrative discretion (in this case the time frame for ending deforesting practices) can be the subject of review through the application of properly interpreted international norms (sieved through the lens of Norwegian public policy). Accountability requires surveillance, in this case through the markets driven mechanisms of finance and investment. This is not a case of state failure but rather one of administrative discipline within the territories of global production subject to the overarching principles of international accountability based measures.
Lastly, it ought to be remembered, deal with probability based decision making. In that respect they differ substantially from what, from the perspective of the management of human rights and sustainability driven economic decision making, would be excruciating post facto for the most part. But probability based decision making requires data--a source of decision making that tends to make what euphemistically might be characterized as an area of great challenge to Ethics Council decision making (see, in this case the Letter from the Ethics Council to Norges Bank). It has become something of a trope, and indeed almost part of the Ethics Council's jurisprudence, to base decisions on a lack of information and to build up a system of inferences on that basis. And yet, it is precisely data that is needed to better--and more comprehensively--apply the normative principles that the Ethics Council has been taking some great effort to build up. Such decision making also requires models--the development of simulated spaces within which it is possible to more robustly predict, and therefore judge, the conduct of enterprises under review. But that does not seem to be the way the Ethics Council is going. With fidelity to a geriatric approach to the subject, one that is itself belied by the very modalities of its own decision making, the Ethics Council and Norges Bank (and there is irony here) remain committed to a qualitative old-fashioned quasi-judicial approach to its work. And that is the great pity. In an age that has come tyo understand the core quantitative nature of accountability, and especially of an accountability system based on principles of prevention-mitigation.and remedy, it appears somewhat quaint, to see the Ethics Council continue to struggle using the approaches of an era now past to endeavor to manage in a new era.
The Summary provided by the Pension Fund Global for both cases, with additional documents follow below.
The Council on Ethics recommends that Yunnan Baiyao Group Co Ltd be excluded from investment by the Government Pension Fund Global due to an unacceptable risk that the company is contributing to severe environmental damage.
Yunnan Baiyao is a Chinese pharmaceutical company which produces ingredients used in Traditional Chinese Medicine (TCM). The company uses and sells body parts from pangolins which is a globally endangered species. The use of threatened animal species in TCM products may contribute to illegal wildlife trade and increases the risk to of these species becoming extinct. There is no information concerning the quantity of body parts of threatened species that the company uses, where the animal parts originate from, what stockpiles exist and how these are replenished. When such data is not made available, the Council on Ethics concludes that the company contributes to severe environmental damage. The company has not disclosed any specific plans to replace the ingredients based on threatened species with other ingredients.
After the Council had submitted its recommendation to Norges Bank, the company informed the Council that that it had purchased pangolin scales legally from official stockpiles. In previous cases, the Council on Ethics has found that the use of body parts form endangered species entails an unacceptable risk of contributing to severe environmental harm, even if these are said to originate from legal stockpiles. The Council on Ethics maintained its recommendation, and informed Norges Bank about this 25 June 2021.
The Council submitted its recommendation 27 May 2021. Norges Bank published its decision to exclude the company on 21 December 2021.
UNOFFICIAL ENGLISH TRANSLATION
To Norges Bank
27 May 2021
Recommendation to exclude Yunnan Baiyao Group Co Ltd from the
Government Pension Fund Global
Summary
The Council on Ethics recommends that Yunnan Baiyao Group Co Ltd (Yunnan Baiyao) be
excluded from investment by the Government Pension Fund Global (GPFG) due to an
unacceptable risk that the company is contributing to severe environmental damage. The
Council’s assessment rests on the company’s use of body parts from endangered animal
species in the production and sale of ingredients for Traditional Chinese Medicine (TCM).
At the close of 2020, the GPFG owned 0.11 per cent of the shares in Yunnan Baiyao, valued
at USD 23.6 million.
Yunnan Baiyao is a Chinese pharmaceutical company which produces, among other things,
ingredients used in TCM products. The company is listed on the Shenzhen Stock Exchange.
The Council’s investigations show that in 2018, the company sold significant quantities of
raw pangolin scales from its own stocks to another pharmaceutical company, and that the
company also produced and sold processed pangolin scales. Yunnan Baiyao has declined to
provide any information about its business to the Council.
The Council considers that loss of biodiversity is a global threat to life on Earth, and that the
eradication of species is accelerating. The Council has focused on animal species that are
included on the IUCN Red List of Threatened Species, i.e. critically endangered, endangered
or vulnerable species, as well as species listed in Appendix 1 to the Convention on
International Trade in Endangered Species of Wild Fauna and Flora (CITES). The Council
considers that companies whose operations contribute to the extinction of species impoverish
biodiversity. By producing medicines containing body parts from endangered species, there is
a risk that the company is contributing to severe and irreversible environmental harm.
In this case, the Council has emphasised that the company sells and uses a critically
endangered species in its production and that the company has not been willing to clarify the
case with respect to its use of body parts from threatened species, the traceability of purchases
or whether it knows their provenance.
The lack of information makes it impossible for the Council to quantify the individual
company’s contribution to the environmental damage caused. When nothing is known of the
extent to which a company uses endangered species, where the animal parts originate from,
what stocks of animal parts exist or how they are replenished, the Council considers that the
question of the company’s contribution must be determined by whether or not endangered
animal species are included in its production. When the activities themselves constitute a risk
of species becoming extinct, there is also a risk that the company contributes to the depletion
of biodiversity and serious environmental damage.
As there is no information available which indicates that Yunnan Baiyao's business has
changed, the Council assumes that the company is continuing to sell and use the body parts
of threatened animals in its production. Until the company publishes a specific goal to stop
using endangered species in its production and a timetable for when its use of such species
will cease, the Council considers that there is an unacceptable risk of the company
contributing to severe environmental damage.
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Marfrig Global Foods SA
The Council on Ethics recommends that Marfrig Global Foods SA be placed under observation due to the risk that the company is contributing to severe environmental damage.
Marfrig is one of Brazil’s largest producers of beef. The company purchases beef cattle, which it slaughters and processes for sale in the national and international market. Marfrig buys cattle in several regions, the most important of which are the Amazon and the Cerrado. Cattle ranching is the main reason for the loss of forest cover and biodiversity in these regions and is linked to conversion of forest to pastureland.
Deforestation occurs on properties in Marfrig’s supply chain. The Council on Ethics considers that Marfrig’s supplier monitoring has not been sufficient to avoid deforestation. Moreover, the monitoring system has mainly targeted the Amazon. Suppliers from other regions with a high rate of deforestation have barely been checked.
In 2020, Marfrig announced that the company would eliminate deforestation throughout its entire supply chain and in all regions by 2030. Even though the Council finds that the timeframe for when this will be achieved is too long and it is unclear how Marfrig’s system will work in practice, the Council considers that these initiatives can reduce the risk of Marfrig contributing to deforestation in the future. The Council therefore recommends placing Marfrig under observation.
The Council submitted its recommendation to place Marfrig Global Foods SA under observation on 30 September 2021. On 21 December 2021, Norges Bank published its decision to follow the Council on Ethics recommendation.
UNOFFICIAL ENGLISH TRANSLATION
To Norges Bank
30 September 2021
Recommendation to place Marfrig Global Foods SA under observation
Summary
The Council on Ethics recommends that Marfrig Global Foods SA be placed under observation
due to a risk that the company is contributing to severe environmental damage. The Council’s
recommendation relates to the deforestation associated with Marfrig’s purchases of beef cattle
for its slaughterhouses in Brazil. Cattle ranching is one of the most important reasons for the loss
of forest cover and biodiversity in the Amazon.
At the close of 2020, the Norwegian Government Pension Fund Global (GPFG) owned 0.2 per
cent of the company’s shares, which are listed on the São Paulo Stock Exchange.
Marfrig is one of Brazil’s largest producers of beef. The company purchases beef cattle, which it
slaughters and processes for sale in the national and international market. Many of the ranches
that supply direct to the slaughterhouses purchase calves from other farms, which may in turn
have bought the calves from other farms, so-called indirect suppliers. The risk of deforestation is
linked to the conversion of forest to pastureland for cattle grazing.
Marfrig buys cattle in several regions, the most important of which are the Amazon and the
Cerrado. In 2009, Marfrig pledged to establish a system to monitor its direct suppliers in the
Amazon. Since 2009, however, numerous reports have been published concerning deforestation
and illegal practices in Marfrig’s supply chain, particularly relating to its indirect suppliers. The
Council’s own investigations indicate the same. The Council has analysed purchases of beef
cattle from ranches with properties that have been embargoed by the Brazilian authorities due to
illegal deforestation. The investigations revealed that up to 3 per cent of Marfrig’s purchases
between 2016 and 2019 could be traced back to ranches with embargoed properties, and that
embargoed properties could be found in all phases of the supply chain, from direct suppliers
down, and in almost all regions – not simply the Amazon.
Marfrig contests accusations that the company has purchased cattle from embargoed properties,
and maintains that this is ensured through monitoring of its purchases. The Council’s
investigations include purchases from ranches where all or part of the property is embargoed,
while Marfrig only checks that the actual property they buy from is not embargoed. So-called
‘cattle laundering’, where an owner moves cattle between embargoed and ‘clean’ properties, is a
major problem in the industry. In light of this, the Council considers that it is not enough to restrict
checks to the individual property. This is particularly apparent when very few of the properties
clear forest illegally are actually embargoed. The Council also considers that even though the
Cerrado is Marfrig’s most important supply base, the company’s supplier monitoring has so far
targeted the Amazon. This means that a large proportion of Marfig’s direct cattle purchases come
from other regions with a high rate of deforestation, but where suppliers are hardly monitored.
The Council attaches importance to the fact that the company has taken an extremely long time to
react. Twelve years after its 2009 pledge to have zero deforestation in its supply chain, the
company is still only starting to implement a system to control and monitor the entire supply chain
in all regions in which it operates.
In 2020, Marfrig announced that the company would eliminate deforestation throughout its
entire supply chain, and published plans to implement a system to control and monitor the entire
supply chain in all regions in which it operates. This is good. However, the Council considers
that the timeframe for when this will be achieved – 2025 in the Amazon and 2030 in the Cerrado
– is too long. Furthermore, the Council finds it unclear how Marfrig’s system will work in
practice and how Marfrig will verify that the measures are working.
Nevertheless, the Council considers that the initiatives that Marfrig has now planned and is
starting to implement have the potential to reduce the risk of it contributing to deforestation
going forward. It appears to the Council that Marfrig is now working more seriously to prevent
deforestation along its entire value chain. Since it is too early to evaluation the impact of these
efforts, the Council is recommending that the company be placed under observation.
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