Risky Business--A New Batch of Exclusions From the Norwegian Pension Fund Global's Investment Universe and One Discontinuance of Observation: Suppressed Economic Sectors, Human Rights, Corruption, Environmental Harm

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The Norwegian Pension Fund Global has recently announced a number of exclusions on the basis of a variety of bases. Three touch on investment or operation of investment-suppressed fields (tobacco and nuclear weapons); one was based on risk of contributing to human rights abuse; one was based on contributing to or responsibility for gross corruption; and the last for contributing to severe environmental damage. 

The three forbidden economic sector decisions include the following. It bears recalling that the Fund applies a broad reading to its rule respecting nuclear weapons ("The assessment’s starting point is that companies which produce nuclear weapons or key components thereof shall be excluded from the GPFG" (General Dynamics, text, below).

Turning Point Brands Inc 

Turning Point Brands Inc is listed on the New York Stock Exchange and manufactures and distributes tobacco products, among other things. The company's annual report for 2022 states that it produces snuff tobacco in its own operations. The company distributes a number of other products based on tobacco and cannabis, but these are produced by others. The Council has approached the company and invited it to disclose further details. The company has not replied to the Council’s query

Company is excluded from the Fund’s investment universe due to its production of tobacco products.
Please find the Council’s recommendation here; text here.


Larsen & Toubro Ltd  

 Since the 1990s, India has undertaken the development of its own SSBN fleet for use as launch platforms for nuclear weapons. The country’s first domestically produced SSBN, INS Arihant, was launched in 2016. In 2022, another SSBN, the INS Arighat, was launched. A further two Arihant-class submarines are presumed to be under construction. . . Part of L&T’s role is to produce the boats’ hulls, which are fabricated and equipped at L&T’s shipyards. The company has mentioned this in several of its annual reports

Company is excluded from investment by the Fund Global (GPFG) due to its production of key components of nuclear weapons. Please find the Council’s recommendation here: text here.

 General Dynamics Corp 

 It is clear that GD is the main contractor for the construction of Columbia-class SSBNs and that these boats are built and equipped at the company’s shipyards. Since the construction of the Columbia-class fleet will continue for many years to come, it must be presumed that the company will engage in this activity for the foreseeable future. It is further evident that GD supplies components for the construction of the UK’s Dreadnought-class SSBNs.

Company is excluded from investment by the Fund Global (GPFG) due to its production of key components of nuclear weapons. Please find the Council’s recommendation here; text here.

Decisions based on risk of serious human rights abuses, risk of gross corruption, and risk of severe environmental damage include the following decisions.

Prosegur Cia de Seguridad SA 

Prosegur is a Spanish company which, among other things, provides security services in several Latin American countries. The company’s subsidiary in Brazil has been involved in severe acts of violence and abuse of tribal people’s rights, providing security services for two clients. Since the company continues to perform the assignments where the abuse took place, and also operates in numerous countries in which there are land disputes and serious antagonism between commercial companies and local populations, the Council presumes that new situations may arise involving a considerable risk of human rights abuses. The Council on Ethics finds that Prosegur has not substantiated that its systems for identifying and managing such risks are adequate, and deems the risk that Prosegur will contribute to serious human rights abuses in future to be unacceptable.

Company is excluded from investment by the Fund due to an unacceptable risk that the company is contributing to serious human rights abuses. Please find the Council’s recommendation here; text here. The most interesting aspect of this decision is the continued refinement of the risk analysis of decision making. Even more interesting is the presumption of an increasingly tight alignment between the administrative structures and operational policies and informal determinations of public authorities and expectations of seamless compliance by the administrative apparatus of private enterprises around which their operations are to be organized. 

The Council notes that Prosegur has established governing instruments and reporting systems that are intended to ensure respect for human rights. Since the company does not perceive recommendations from the prosecuting authorities as alerts of human rights abuses, the Council considers that these systems are of limited significance. When the company sets such a high threshold for addressing the risk of human rights abuses, it is difficult to both identify risks and establish adequate initiatives to mitigate them. (text here.)

Neither bad nor good, but further indication of the trajectories of alignment of public and private techno-bureaucracies operating under conditions of compliance driven by public policy.

China State Construction Engineering Corp Ltd (CSCEC) 

CSCEC’s primary business activities include the construction of all types of public buildings, as well as infrastructure such as railway lines, motorways, bridges, ports, etc. The Council’s inquiries have shown that CSCEC may be linked to allegations or suspicions of corruption in a number of countries in the period 2004–2021. CSCEC operates in a business sector and in many countries in which the risk of corruption is high. Moreover, China’s enforcement of corruption abroad has been ranked in the lowest category by Transparency International. The Council has therefore contacted CSCEC and asked it a number of questions concerning the company’s measures to prevent, detect and react to corruption, but the company has failed to reply to the Council’s queries. On this basis, and in light of the cases described, the Council considers that the risk of gross corruption linked to CSCEC’s operations is unacceptable. (here)

Company is excluded from investment by the Fund due to an unacceptable risk that the company is contributing to or is itself responsible for gross corruption. Please find the Council’s recommendation here; text here. The case is interesting both for its reminder that failure to reply to Fund inquiries can be read quite negatively and for the presumptions built on the relationship between risk and compliance measures. The real question centers around sanction (exclusion versus observation), the jurisprudence of which remains still uncomfortably close to discretionary determinaitons with no real check. The Ethics Council's summary of its anti-corruption structural and compliance expectations follow below. 

Tianjin Pharmaceutical Da Re Tang Group Corp Ltd 

Tianjin Pharmaceutical Da Re Tang Group Corp Ltd is a Chinese pharmaceutical company that manufactures and markets Traditional Chinese Medicine (TCM). The company’s products contain body parts from globally threatened species such as leopard bones, pangolin scales and musk from musk deer. 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. Company is excluded from investment by the Fund due to an unacceptable risk of the company contributes to severe environmental damage.

Please find the Council’s recommendation here; text here. This case is another in a growing list of cases that suggest that the Fund has a special interest in the environmental consequences of Chinese traditional medicine procurement.

In addition, following a recommendation from the Council on Ethics, Norges Bank announced its decision to discontinue the observation of the company Supermax Corp Bhd.

Supermax is a Malaysian company that produces rubber and latex gloves. . . In February 2022, the Council on Ethics recommended that Supermax be excluded from the Norwegian Government Pension Fund Global (GPFG) due to an unacceptable risk that the company was contributing to human rights abuses. The Council’s recommendation was based on reports of extremely poor living and working conditions for migrant workers at the company’s production facilities in Malaysia. In June the same year, Norges Bank decided to place Supermax under observation. During the observation period, Supermax reported that it has implemented measures to improve conditions for migrant workers. . . In September 2023, furthermore, the US authorities lifted import restrictions on Supermax’s products because the conditions that had led to the company being blacklisted due to the risk of forced labour had been rectified. This could indicate that conditions for workers at Supermax’s production facilities have improved, and that the risk of the company contributing to serious or systematic human rights abuses no longer unacceptable.

Please find the Council’s recommendation here; text here. Here, as in earlier cases, the Fund appears willing to rely determinations by the state apparatus of other public bodies on which to base its assessment. The regularization of this impulse remains to be developed in a useful way.

China State Construction Engineering Corp Ltd (CSCEC)  (here pp. 9-11).

3 Anti-corruption standards

In its assessment of what companies are dong to prevent any future incidence of corruption, the Council refers, among other things, to international standards for best practice regarding compliance and anti-corruption in multinational companies. On the basis of these standards, some key principles can be deduced with respect to the steps a company should take to establish and implement an
effective anti-corruption programme.28

All standards for best practice presume that top management must be genuinely involved in this effort if a company is to be capable of effectively preventing corruption. In this context, it is important that management clearly communicates zero tolerance of corruption, and that the company

26 «Rule of Law» and «Control of Corruption» respectively:
https://www.worldbank.org/en/publication/worldwide-governance-indicators (last visited 23
January 2024).
27 Transparency International. 2022. Exporting Corruption 2022: Assessing Enforcement of the OECD Anti-Bribery Convention, pp. 90–91, https://www.transparency.org/en/publications/exporting-corruption-2022.
28 Internationally recognised guidelines and principles for the design of anti-corruption
programmes may inter alia be found in: ISO 37001:2016: Anti-bribery management systems –Requirements with guidance for use; UNODC. 2013. An Anti-Corruption Ethics and Compliance Programme for Business: A Practical Guide, available at
https://www.unodc.org/documents/corruption/Publications/2013/13-84498_Ebook.pdf; U.S.
Department of Justice (DOJ) and U.S. Securities and Exchange Commission (SEC). 2012. A
Resource Guide to the U.S. Foreign Corrupt Practices Act, available at
https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2015/01/16/guide.pdf; OECD.
2010. Good Practice Guidance on Internal Controls, Ethics and Compliance, available at
https://www.oecd.org/daf/anti-bribery/44884389.pdf; Transparency International (TI). 2013.
Business Principles for Countering Bribery, available at http://www.transparency.org/whatwedo/publication/business_principles_for_countering_briber
y.

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communicates the importance of its corruption-prevention activities to its workforce, business partners and representatives.29

To be able to define systems and an anti-corruption programme tailored to the specific business, corruption risk must be systematically identified and assessed in all areas of the operation. It is a minimum requirement that a company implements robust preventive measures in those areas in which it is most
exposed to risk.30

To achieve the effective implementation of these systems, good training programmes must be developed for employees and those business partners over which the company has a controlling or decisive influence. Senior executives, middle managers and employees in high-risk positions must, in particular, receive specially tailored training.31

Furthermore, it is important that the company perform due diligence on third parties, that third parties in high-risk areas are given anticorruption training and are followed up on a regular basis, and that payments to such third parties are checked and verified as being proportionate to the work performed.32 The follow-up of third parties may, for example, include regular reviews and updates of risk assessments and due diligence processes, repeated online and database searches to identify new red flags, and regular and/or risk-based audits.33

Management must encourage employees to behave in compliance with the anticorruption programme and to report any suspected breaches of internal regulations. Systems should be established by which employees and others can

29 UNODC (2013), Chapter III(A); OECD (2010), Annex II(A)(1); TI (2013), section 6.1. See also World Bank Group (WBG). 2010. Summary of World Bank Group Integrity Compliance Guidelines, section 2.1, available at https://thedocs.worldbank.org/en/doc/06476894a15cd4d6115605e0a8903f4c-0090012011/original/Summary-of-WBG-Integrity-Compliance-Guidelines.pdf.
30 This follows, for example, from UNODC (2013), Chapter II; OECD (2010), Annex II(A); DOJ and SEC (2012), Chapter 5, pp. 58–59; UK Ministry of Justice. 2011. The Bribery Act 2010 Guidance, Principle 3, available at https://www.gov.uk/government/publications/bribery-act-2010-guidance. More extensive guidance on how such risk assessments may be performed can be found, for example, in the Global Compact’s A guide for anti-corruption risk-assessment (2013), available at https://www.unglobalcompact.org/docs/issues_doc/Anti-
Corruption/RiskAssessmentGuide.pdf.
31 UNODC (2013), Chapter III(H); OECD (2010), Annex II (A)(8); TI (2013), section 6.4; WBG (2010), section 7.
32 OECD (2010), Annex II(A)(6)(i); TI (2013), section 6.2.; WBG (2010), section 5.
33 World Economic Forum-Partnering Against Corruption Initiative (WEF-PACI). 2013. Good Practice Guidelines on Conducting Third-Party Due Diligence, point 4(b), p. 14,
http://www3.weforum.org/docs/WEF_PACI_ConductingThirdPartyDueDiligence_Guidelines_2013.pdf.

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report wrongdoing anonymously and without risk of retaliation.34 The company should have a clearly defined procedure for investigating reports of rule violations, and it must make it very clear what steps will be taken against any individuals who breach the rules.35

The anti-corruption programme must be monitored and improved on the basis of both internal experience, changes in the company's risk exposure and new laws and standards for best practice.36

According to best practice, it is crucial that corruption prevention activities be delegated to a separate function or a person endowed with the necessary resources and autonomy. It is presumed that the compliance department has direct access to executive management and to the board of directors.37 It is,
moreover, crucial that the compliance department has the necessary resources and competence.

34 UNODC (2013), Chapter III (I) and (J); OECD (2010), Annex II(A)(9) and (11)(ii); TI (2013), sections 6.3.1. and 6.5.1.; WBG (2010), sections 8.1, 9.1 and 9.3.
35 UNODC (2013), Chapter III(J) and (K); WBG (2010), section 10.
36 UNODC (2013), Chapter III(L); OECD (2010), Annex II(A)(12); TI (2013), sections 6.8 and 6.10; WBG (2010), section 3.
37 This follows, for example, from DOJ and SEC (2012), Chapter 5, p. 58; OECD (2010), Annex II(A)(4); WBG (2010), section 2.3