Norwegian Pension Fund Global Takes Action Respecting Several Companies: Complicity in Myanmar and Xinjiang Labor Actions and Their Implications for Business Response to the Invasion of Ukraine by Russia

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Today, Norges Bank announced a number of actions touching on the administration of their pension fund investments under its Ethical Guidelines. The changes included decisions respecting exclusion and observation of several companies, following recommendations by the Council on Ethics, under the Guidelines for Observation and Exclusion of companies from the Government Pension Fund Global.

The first, Li Ning Co Ltd (Li-Ning) (Council Recommendation HERE) was excluded from the SWF's investment universe due to an unacceptable risk that the company is contributing to forced labour in Xinjiang, China. The second, Adani Ports & Special Economic Zone Ltd (Council Recommendation HERE) was placed under observation due to an unacceptable risk that the company is contributing to serious human rights violations in a conflict zone because of its activities in Myanmar. 

Li Ning Co Ltd is interesting for several reasons.  First it continues the Ethics Council's  practice of reading non-cooperation negatively.  In this case the company failed to respond to the Council’s requests for information. The information used was gleaned from the Internet for the most part. This carries into effect what the Ethics Council notes as the intent derived from the Report to the Storting (white paper) No. 24 (2020–2021; at p. 140). The second is perhaps more interesting.  It appears to apply a heightened risk standard where states also fail to be transparent about its policies in a particular area that may be the subject of human rights concern.  In this case, the Ethics Council drew its conclusion from news and NGO reports (the thrust of which, the Ethics Council noted, were contested by Chinese officials), the refusal of Chinese authorities to open the area for inspection by the representatives of the UN High Commissioner for Human Rights, and most importantly, the imposition of sanctions by the EU in March 2021, on several Chinese public officials as well as the XPCC Public Security Bureau on the grounds of human rights abuses (including forced labor) in Xinjiang. Lastly the absence of any information on efforts by Li Ning to conduct anything approaching human rights due diligence also contributed to the assessment of risk triggering exclusion. 

More interesting now in light of the Russian invasion of Ukraine in February 2021, was the recommendation in Adani Ports & Special Economic Zone Ltd. The issues revolved around the heightened duty of vigilance in conflict zones--in this case Myanmar after the military coup. First, and perhaps most importantly, was the application of the "may contribute to strengthening the armed forces’ economic and logistical capacity" standard. The standard does not require actual or directly linked facilitation, cooperation, or participation in the human rights violations of the state and its agents.  It requires only an assessment of potential. But not just of potential to directly contribute--it is enough that the activity may indirectly contribute by strengthening the violating entities' economic and logistical capacity.  As such, at its broadest reading, and applied to situations of conflict, it suggests that there is no need to connect the activity to the harm at all--only to the contribution to the capacity of the state to engage in the harm generally: "this means that if there is a risk of contributing to extreme abuses, the Council may decide that the risk is unacceptable even if the company’s links to the norm violations are somewhat weaker than the Council normally requires to recommend observation or exclusion. This case relates to precisely such extremely serious norm violations."(Ethics Council Recommendation p. 6).  

This premise, though was narrowed a little  to bring back from element of linkage.  In a key paragraph with potential to guide the calculus of human rights due diligence in the context of the Russian operations in Ukraine (conflict zone) and within the states in conflict, the Ethics Council reasoned:

The Council does not consider that engaging in business operations in Myanmar is problematic per se, but shares the UN FFM’s view that having a direct business relationship with a military-owned company constitutes a high risk of contributing to serious norm violations. In the Council’s view, the company accepted this risk when it signed an agreement with MEC. The Council also attaches importance to the fact that the port in Yangon could help to boost the armed forces’ logistical capacity, and that APSEZ, through its business relationship, has helped to strengthen the armed forces financially. The port could become a long-term source of revenue for the armed forces, even if a new civilian government should
be put in place. (Ibid., p. 7).

In effect, the Council suggested a "direct link"  to state instrumentalities standard (though not to the state activities that may give rise to breaches of human rights).  At the same time, the Council reasoned that such direct link alone increases the probability not merely of contributing  directly to the human rights harms perpetrated by or through state organs, but also to the probability that such a link contributes to the capacity of the state and its instrumentalities to perpetuate those human rights wrongs.  That may contribute to state capacity to commit wrongs standard is, itself, a sufficient trigger both to heightened due diligence, and to strategies of prevention--or where that is not possible to mitigation and thereafter remedy. The later is especially important where, for example, the company itself would perpetrate human rights wrongs by ceasing operations  or the connection to the state entity (for example by putting former employees, customers, etc. at risk).  Sadly, it is this later point that the Ethics Council failed to mention in its rush to approve (though with suspicion as to the likelihood that it can be achieved) the company decision to withdraw from Myanmar. It was this wariness, and with it an implicit approval of the withdrawal option without much consideration (a pity), that supported the recommendation to place the company under observation (with Mother Norway's purse now doing the watching).  As Verena Girschik & Htwe Htwe Thein recently noted (To stay or to go: Corporate complicity in human rights abuses after the coup d’état in Myanmar): 

"Yet while leaving the country ceases support to the military, it also entails that companies no longer provide goods and services (including essential services) and support to the workers and civil society (e.g. Telenor; Germany’s food retailer Metro. Companies have been supporting workers by sustaining safe workplaces, thereby securing workers’ incomes and stability. What is more, their support has enabled and sustained social movements. For example, women union leaders in the garment industry have been a driving force in anti-military protests. "

Altogether, however, the result is a broadening of the application of the complicity standard (on complicity under the UNGP see my discussion HERE) and in some respect a useful way of approaching the issue of complicity, and the means of determining action under conditions of heightened caution in working through human rights due diligence decision making. The situation in Ukraine (and Russia) is different, though in a variety of respect.  Unlike Myanmar, the actions here are international rather than part of an internal struggle. Second, the conflict zone is itself subject to debate.  While it might be narrowly centered on sites of actual fighting, it is also possible to argue that the entire  nation of Ukraine is within the zone, and most broadly that the territorial boundaries of the combatant states make the edges of the zone of conflict. Modern warfare theories, on the other hand suggest that zones of conflict may be abstracted and follow all chains of engagement in the conflict (not necessarily marked by physical territory).  Taking the last as a starting point, all enterprises at all linked to state instrumentalities may (1) be responsibility for appropriate human rights due diligence exercises (the central element of Li Ning Co Ltd ) but (2) must balance responses in light of the human rights harms of any action (for example withdrawal--always the most public gesture--but one that centers prevention and mitigation going forward) against the contribution (eventually requiring remedy) to the capacity of the state offender to commit human rights harms (only partially recognized in Adani Ports & Special Economic Zone Ltd.).

Descriptions and links to all actions follow below.

 

Exclusion of company:

Li Ning Co Ltd (Li-Ning) is excluded from investment by the Government Pension Fund Global due to an unacceptable risk that the company is contributing to forced labour in Xinjiang, China. Please find the Council's recommendation to exclude the company here:
https://etikkradet.no/li-ning-co-ltd-2/

Observation of companies:

Hyundai Glovis Co Ltd is placed under observation under the Guidelines’ environmental and human rights criteria because of its practices in recycling of decommissioned vessels.  Please find the Council’s recommendation to place the company under observation here: https://etikkradet.no/hyundai-glovis-co-ltd-2/

Bombardier Inc is placed under observation due to an unacceptable risk that the company is contributing to or is itself responsible for gross corruption. Please find the Council’s recommendation to place the company under observation here: https://etikkradet.no/bombardier-inc-2/

Adani Ports & Special Economic Zone Ltd is placed under observation due to an unacceptable risk that the company is contributing to serious violations of the rights of individuals in situations of war or conflict because of its activities in Myanmar.  Please find the Council’s recommendation to place the company under observation here: https://etikkradet.no/adani-ports-special-economic-zone-ltd-2/

Revocation of exclusion

San Leon Energy Plc is no longer excluded from the Government Pension Fund Global. The company was excluded in 2015 under the criterion other particular serious violation of fundamental ethical norms. Please find the Council’s recommendation to revoke the exclusion here: https://etikkradet.no/san-leon-energy-plc-4/

Ending of observation

Nien Hsing Textile Co Ltd is no longer placed under observation. In July 2018, the company was placed under observation due to the risk of systematic abuse of labour rights at the company’s textiles factories. Please find the Council’s recommendation to end the observation of the company here: https://etikkradet.no/nien-hsing-textile-co-ltd-4/

Hansae Yes24 Holdings Co Ltd and Hansae Co Ltd is no longer placed under observation.
In June 2017, the companies were placed under observation due to the risk of systematic labour rights violations. Please find the Council’s recommendation to end the observation of the company here: https://etikkradet.no/hansae-yes24-holdings-co-ltd-hansae-co-ltd-2/

Of these actions two stand out.

The first, Li Ning Co Ltd (Li-Ning) was excluded from the SWF's investment universe due to an unacceptable risk that the company is contributing to forced labour in Xinjiang, China. The second, Adani Ports & Special Economic Zone Ltd was placed under observation due to an unacceptable risk that the company is contributing to serious human rights violations in a conflict zone because of its activities in Myanmar.