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Norges Bank has just announced the latest batch of decisions:
1. Following a recommendation from the Council on Ethics, the exclusion of the company Mativ Inc (formerly Schweitzer-Mauduit International Inc) has been revoked because the company is no longer involved in tobacco production. Council’s Press Release here: https://etikkradet.no/mativ-inc-revocation-of-exclusion/. Ethics Council Opinion HERE. Not much to see here other than the usual operation of the effectiveness of market nudging which remains the centerpiece of the framing premises for the apparatus of the Pension Fund Global's (PFG) legal-political objectives (while making money). The essence focuses on the transactional nature of markets within the context of a system of bartering in which legal norms and expectations (compliance) serve as objects of value that may be traded for inclusion in an investment universe (and thus provide financial incentives).
2. Following a recommendation from the Council on Ethics, the period of observation of the company Bombardier Inc has been extended due to an unacceptable risk that the company contributes to or is responsible for gross corruption. Council’s Press Release here: https://etikkradet.no/bombardier-inc-extended-observation/. Ethics Council Opinion HERE. This one is also an example of the application of well worn principles.
The decision was based on the fact that Bombardier or its subsidiaries could be linked to allegations or suspicions of corruption in six countries over a period of more than ten years. In its assessment of future risk, the Council attached importance to multiple deficiencies in the company’s follow-up of corruption risk. This included top management’s lack of communication of zero tolerance for corruption, as well as inadequate third-party assessments and follow-up of when corruption was reported.
Like the Mativ determination, here the object was to compel a desired set of internal governance measures to be adopted by the company, as a condition of remaining in the investment universe of the PFG. The effect is meant to be similar to one grounded in the promulgation of an administrative edict through the application by public officials of regulatory "instructions." But all of this is done without the benefit of law. It is a business transaction essentially a private law bartering that mimics the effects of law but within the context and sensibilities of the market--in return for continued inclusion in the PFG investment universe, compliance with a host of administrative measures and adoption of certain administrative policies and sensibilities is required. That was the essence of the private sector focus of the 2nd Pillar of the UN Guiding Principles for Business and Human Rights which in its Principle 19 (Commentary) elaborated a theory of action through leverage:
If the business enterprise has leverage to prevent or mitigate the adverse impact, it should exercise it. And if it lacks leverage there may be ways for the enterprise to increase it. Leverage may be increased by, for example, offering capacity-building or other incentives to the related entity, or collaborating with other actors. (UNGP Principle 19 Commentary).
The twist here is that a State organ is using the principle as it inserts itself as an actor in private markets projecting through that device public policy and preferences. That is also contemplated by the UNGPs (eg Principles 3, 4, and 6). The result is meant to effectively use leverage through active shareholding by PFG to ensure that the "bargain" is fulfilled. Here one finds another example of the exercise of influence
The key here, as in many decisions, was compliance and disclosure related: "Over the observation period Bombardier has provided the Council with limited documentation to show how the company’s anti-corruption and anti-money laundering systems work in practice." Given that determination, the resulting action was almost inevitable (though it might also have produced a decision toe exclude had the application of the Global Pension Fund's risk avoidance principles been applied more strictly. And, indeed, one of the signposts in this matter was the underling and critical importance not of the substantive framework on which the decision is based but rather o the development and application of the calculus of risk--and more importantly on the perhaps shifting line between acceptable and unacceptable risk in specific contexts, an actin that tests the ability of an administrative apparatus to be consistent and principles in the exercise of its discretionary powers within a rules based framework.
The decision might also serve as a reminder--even as elite circles deepen their ideological commitment to the inevitable and necessity principle of the superiority of legalized administrative architectures to managing business conduct-production-sensibilities aligned to state policy (something the Soviets theorized better)--that techno-bureaucratic management can as easily be directed form within the market as from outside of it. The trick here is to align the internal corporate techno-bureaucracies with those of the compliance based public organs of the administrative apparatus of a state. All of this strengthens the "liberal" part of liberal democracy, and perhaps at the expense of the "democracy" part.
3. The Council on Ethics has recommended the exclusion from the Fund of the companies Compagnie de l'Odet SE and Bolloré SE on the basis of the risk that the companies are contributing to serious and systematic human rights abuses; Norges Bank opted for observation. The recommendation relates primarily to working conditions at oil palm plantations in Cameroon and their consequences for local communities. Norges Bank announced its decision to follow up on the companies through active ownership. Note therefore that these companies have not been excluded from investments by the Fund. Council’s Press Release here: https://etikkradet.no/compagnie-de-lodet-se-and-bollore-se/. Ethics Council Opinion HERE.
This is perhaps the most interesting of the three. It focuses on active ownership and in the process provides a window on the further development of a line of interpreting at least the spirit of UN Guiding Principles for Business and Human Rights Principle 19 in interesting ways beyond what is on display in the Bombardier determination. What makes this interesting rather than mundane is the interaction of two levels of active ownership--one at the company level (the focus of which consumed the Ethics Council), and the other on the responsibilities of active ownership at the investment level (the focus of Norges Bank's decision). It serves as a window on the way in which a multi-layered State organ, like the Norway PFG mediates its in-market regulatory interactions between micro activity (the regulation of target company internal compliance related governance) and macro activity (the responsibility of the regulatory organ to itself leverage its own responsibility through active ownership as a minority owner to attain internal governance reform of companies in its investment universe).
For the Ethics Council, the failures of the target enterprise to effectively exercise leverage down its production chain triggered an exclusion recommendation (they failed to keep their end of the "bargain" and would therefore lose their "investment universe inclusion "privileges"). The conclusions were made especially acute by the context, which appeared to make the Ethics Council suspicious of the bona fides of formal changes in structure and to assume that leverage was not adequately used to enforce compliance down a production chain.
Cie de l'Odet has controlling ownership in Bolloré. In line with previous recommendations, the Council on Ethics takes the view that parent companies are accountable for the actions of those subsidiaries. Furthermore, the Council considers that Bolloré, through its shareholdings, is contributing to the human rights abuses for which Socapalm is directly responsible. Bolloré’s assertion that it has no influence over how the plantations are run and how the human rights policy is implemented, since it is a minority shareholder in Socfin, is of little significance to the Council’s assessment in relation to the ethical guidelines. Nor does the Council attach any weight to Bolloré’s transfer of its voting rights in Socfin to that company’s largest shareholder in connection with its stock exchange delisting. What the Council finds material is that Bolloré has, and always has had, a significant shareholding in Socfin and that Bolloré’s senior executives have served on the boards of Socfin and Socfinaf for more than 30 years. (Ethics Council Recommendation, p. 18).Indeed, the Ethics Council was clear in its connection of the analysis to its interpretive application of the UNGP Principle 19 Commentary on leverage ("The Council finds no indications that Bolloré is in this case complying with its human rights policy, which is based, inter alia, on the UN Guiding Principles on Business and Human Rights, since it will not use its influence to put an end to the norm violations." Ibid.). Built into tat determination were a set of premises about the nature of leverage and its application within production chains, one grounded in their own triggers for effective control rather than on formal control, either through ownership or contract. Effective control is contextual and dynamic, and tend to favor broader expectations of leverage and its effectiveness. Formal control measures are more straightforward but tend to favor stronger limits on leverage.
For Norges Bank, however, one might read their decision to opt for observation as a signal that failure at the operational level, in this case at least, triggers a stronger responsibility of the investor to leverage ownership to seek to remedy compliance (in this case governance) deficiencies in ways that serve its policy interests and objectives. Though there is no record available for assessing the reasoning of Norges Bank, one can suggest that the determination--that failures of leverage at the operational level first require exercise of leverage at the finance level. The Commentary to UNGP Principle 6, for example, explains:
States conduct a variety of commercial transactions with business enterprises, not least through their procurement activities. This provides States – individually and collectively – with unique opportunities to promote awareness of and respect for human rights by those enterprises, including through the terms of contracts, with due regard to States’ relevant obligations under national and international law. (UNGP Principle 6 Commentary).
The Commentary to UNGP Principle 4 also suggests the discretionary resort to guidance as opposed to mandatory measures: "Guidance to business enterprises on respecting human rights should
indicate expected outcomes and help share best practices." (UNGP Principle 4 Commentary). And, it might be argued that active shareholding may advance compliance by state organs with UNGP Principle 2 (see my Commentary here). Lastly, one can only wonder, at this point, the extent to which the EU's Corporate Sustainability Due Diligence Directive will affect the way that the Ethics Council draws lines respecting leverage and leverage related obligations--as well as the extent to which leverage at the PFG level will require greater attention.
The Press Releases for the three cases follow below. The reader may be rewarded by considering the three cases as disaggregated aspects of a coordinated whole--moving from an example of successful leverage (Mativ) to the continued exercise of leverage through active shareholding to produce substantial governance reform (Bombardier), to the tensions between the obligations for active shareholding and leverage at the operational level versus the exercise of leverage at the investment level where there is disagreement in line drawing (and risk assessment) between the Ethics Council and Norges bank.
Mativ Inc – revocation of exclusion
Mativ Inc (formerly Schweitzer-Mauduit International Inc) was excluded from investment by the Norwegian Government Pension Fund Global (GPFG) in 2013 due to its production of tobacco. Since the company is no longer involved in such production, the Council on Ethics recommends that the company’s exclusion be revoked.
The Council on Ethics submitted its recommendation on April 23, 2024. Norges Bank published its decision to revoke the exclusion of the company on June 26, 2024.
Please find the Council’s recommendation here.
Bombardier Inc – extended observation
On 13 March 2024, the Council on Ethics recommended to extend the observation of the Canadian company Bombardier Inc (Bombardier) due to an unacceptable risk that the company contributes to or is responsible for gross corruption.
Bombardier is one of the world’s largest producers of private jet aircraft. The company was placed under observation in March 2022. The decision was based on the fact that Bombardier or its subsidiaries could be linked to allegations or suspicions of corruption in six countries over a period of more than ten years. In its assessment of future risk, the Council attached importance to multiple deficiencies in the company’s follow-up of corruption risk. This included top management’s lack of communication of zero tolerance for corruption, as well as inadequate third-party assessments and follow-up of when corruption was reported.
Over the observation period Bombardier has provided the Council with limited documentation to show how the company’s anti-corruption and anti-money laundering systems work in practice. Therefore, the Council considers that the risk attaching to Bombardier’s efforts to prevent, detect and deal with corruption still is not acceptable.
On 26 June 2024, Norges Bank announced its decision to extend the observation of Bombardier.
Please find the Council’s recommendation here.
Compagnie de l’Odet SE and Bollore SE
The Council on Ethics recommends that the companies Compagnie de l’Odet SE and Bolloré SE be excluded from investment by the Norwegian Government Pension Fund Global due to the risk that the companies are contributing to serious and systematic human rights abuses. The recommendation relates primarily to working conditions at oil palm plantations in Cameroon and their consequences for local communities.
Cie de l’Odet is the controlling owner of Bolloré, which has significant ownership interests in the companies Socfin, Socfinaf og Socapalm which operates oil palm plantations in Cameroon.
The Council on Ethics’ investgations into Socapalm’s plantation operations have revealed numerous and in some cases serious labour rights violations, including rape, sexual violence and harassment of women by supervisors and security guards at the plantation. Socapalm’s workforce are mainly contract workers or day labourers. Almost none of them have an employment contract, they earn less than the legal minimum wage, have their pay docked for social benefits they do not receive, and can be hired and fired at will. Moreover, Socapalm has extended the plantation to areas belonging to local communities and made it difficult for them to access their properties, which also weakens their livelihoods. Similar abuses and sexual harassment of women and female workers have been reported for many years at a number of Socfin’s plantations in Liberia and Sierra Leone.
The companies maintain that they hold minority stakes in Socfin and therefore have no influence over how the plantations are operated. The the lack of formal control is of little significance to the Council’s assessment. The Council emphasises that Cie de l’Odet has controlling interest in Bolloré, that Bolloré has, and has always had, a material ownership interest in Socfin, and that Bolloré’s senior executives have served on Socfin’s board of directors for more than 30 years. This indicates that Bolloré should have sufficient influence to improve the situation at the plantations if the company so wished. Neither Cie de l’Odet nor Bolloré seem to acknowledge the risk of contributing to serious norm violations relating to the plantation business. The Council concludes that there is an unacceptable risk that Cie de l’Odet and Bolloré will continue to contribute to serious and systematic human rights abuses in the future.
The Council issued its recommendation on 19 March 2024. Norges Bank announced its decision to follow up on the companies through active ownership.
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