Norges Bank has decided to exclude a company from the Government Pension Fund Global, initiate observation of two companies, end special exercise of ownership in one company and extend special exercise of ownership in two companies.
The Norges Bank Executive Board has decided to exclude Delek Group Ltd due to unacceptable risk of the company contributing to or being responsible for serious breaches of ethical norms, ref. the conduct-based criterion in the Guidelines for Observation and Exclusion from the Government Pension Fund Global § 4 h. The decision is based on a recommendation from the Council on Ethics of 30 May 2023, based on the company’s petroleum prospecting offshore West Sahara.
The Executive Board has also decided to place KDDI Corp and Sumitomo Corp under observation for a period of three years due to unacceptable risk that the companies are contributing to serious violations of the rights of individuals in situations of war or conflict, ref. the conduct-based criterion in the Guidelines for Observation and Exclusion from the Government Pension Fund Global § 4 b. The recommendation relates to the companies’ telecommunications business in Myanmar.
The decision is based on two recommendations from the Council on Ethics of 29 June 2023. The Council recommended exclusion of the companies. According to the Guidelines § 6(5), companies may be placed under observation if it is uncertain whether grounds for exclusion exist or what developments may occur forward in time, or when expedient for other reasons. Based on the recommendations, the Executive Board has emphasized steps the companies have taken, including conducting human rights due diligence, assessing the human rights situation in the country and dialogue with human rights experts. The observation period gives the Council on Ethics the opportunity to observe the companies’ further efforts to manage human rights risk and the development of the companies’ business in Myanmar.
The Executive Board has not conducted an independent assessment of all aspects of the above recommendations but is satisfied that criteria for the exclusion and observation have been fulfilled. Before deciding to exclude or place a company under observation, Norges Bank shall consider whether the use of other measures, including the exercise of ownership rights, may be better suited. The Executive Board concludes that it is not appropriate to use other measures in these cases.
Furthermore, the Executive Board has decided to end the special exercise of ownership in PetroChina Co Ltd. In February 2020, the Council on Ethics recommended that Norges Bank exclude PetroChina Co Ltd from the fund due to unacceptable risk that the company contributes to, or is responsible for, gross corruption, ref the conduct-based criterion in the Guidelines for Observation and Exclusion from the Government Pension Fund Global § 4(g). The Executive Board of Norges Bank decided that the matter should instead be taken up with the company through active ownership over a period of three years. The ownership period has now come to an end, and the Executive Board finds that the risk of future norm violations appears to be sufficiently reduced. The special exercise of ownership will therefore end, and going forward, Norges Bank Investment Management will continue to engage with the company as part of its regular ownership activities. See more information about the special ownership engagement below.
The Executive Board has also decided to extend the special exercise of ownership in Shell PLC and Eni SpA by two years. The Council on Ethics recommended in March 2013 to place the companies under observation due to unacceptable risk that the companies contribute to or are responsible for severe environmental damage, ref the conduct-based criterion in the Guidelines for Observation and Exclusion from the Government Pension Fund Global § 4(e). The recommendations were based on the companies’ activities in the Niger Delta. The exercise of ownership has now lasted for ten years. Norges Bank Investment Management has during this time met the companies regularly, including through in-person meetings, video conferences and written correspondence. The Executive Board has now assessed the case and progress towards the ownership objectives. Overall, the Executive Board finds that there is still a forward-looking risk of norm violation. At the same time, the exercise of ownership has been constructive and the Board notes that the companies have publicly expressed an ambition to divest the relevant assets in the Niger Delta.
Delek Group Ltd
KDDI Corp
Sumitomo Corp
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Line Aaltvedt
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Email: press@nbim.no
On 28 February 2020, the Council on Ethics recommended that Norges Bank exclude PetroChina Co Ltd from the fund due to unacceptable risk that the company contributes to, or is responsible for, gross corruption (cf. the conduct-based criterion in the Guidelines for Observation and Exclusion from the Government Pension Fund Global). The recommendation stemmed largely from the corruption investigations of several former senior executives and subsequent failures by the company to address and mitigate future corruption risks. The company had been under observation by the Council since 2017. The Executive Board of Norges Bank decided in August 2020 that the matter should instead be taken up with the company through active ownership over a period of three years.
The three-year active ownership period has now come to an end. Norges Bank Investment Management’s interactions with PetroChina during this period have included video conferences and written exchanges. It was not possible to meet in-person due to Covid-19 travel restrictions. Despite this, and in light of concrete actions taken by the company, the Executive Board finds that the risk of future norm violations appears to be sufficiently reduced. It has therefore decided to conclude the Bank’s special ownership dialogue with the company under the Guidelines on Observation and Exclusion.
The aim of the dialogue with PetroChina was for the company to demonstrate sufficient improvements to its anti-corruption programme considering the company’s risk exposure. Our engagement indicates that the company has strengthened its due diligence and monitoring processes. Issues raised with the company during the engagement include the procedures in place for identifying and assessing corruption risks, procedures for monitoring risk and investigating incidents, risk mitigation measures, and board competency and oversight of the compliance program. We also raised questions focusing on training, company culture, and the specific issue of third-party corruption risk.
Since the companies’ industry and operations are still considered to be at a relatively high risk of corruption, Norges Bank Investment Management plans to continue to engage with the company as part of its regular ownership activities.