Norway’s NK7,475 billion ($878-billion; €800 billion) sovereign wealth fund, Government Pension Fund Global, pulled out of investments in seven companies last year because of concerns they were involved in clearing tropical rainforest for forestry or palm oil plantations.
“We have divested from a number of companies in recent years following assessments of environmental, social and governance related risk factors,” fund spokeswoman Marthe Skarr told Agri Investor. She added an article in Reuters today, which suggested the fund had divested from 11 companies, was not accurate.
“Our approach to responsible investment management may in some cases lead to divestments from companies where we see elevated long-term risks,” she said.
The fund began divesting from palm oil companies in 2012, and by the end of 2013 had exited from 27 companies, according to Skaar. The fund also pulled out of at least four pulp and paper companies.
The fund’s Council of Ethics’ advice resulted in at least four companies being banned from the fund last year for their involvement in clearing tropical forest for palm oil. The lack of data provided by the companies on their impact on the environment and biodiversity in the regions they cleared was cited as a factor in all cases.
Genting Berhad was excluded because its subsidiary Genting Plantations was clearing tropical forest for oil palm plantations in Indonesia and Malaysia, according to the fund. Daewoo, the majority shareholder in PT Bio Inti Agrindo, was banned for the plantation subsidiary’s decision to convert a large area in biodiverse Indonesian rainforest.
Lee Coates, founder and director of the Ethical Investors advisory firm, told Agri Investor: “This is not a cyclical issue that is going to go away. Environmental damage and carbon emissions are serious risks and should be considered so, not least after COP21.
“They are ahead of the curve in forestry perhaps. But when you get an action like this from a sovereign wealth fund, you can see that institutional investors are becoming nervous about these kinds of investment.”
“Increasingly, managers are being held accountable, and in Norway managers understand that if you are investing into future generations, the environment those people will be born into needs to be considered as part of the investment strategy,” said Coates.
He added that as investors, including institutions and family offices, become more aware of these environmental issues, financing even to exit investments in areas like palm oil or coal will become increasingly difficult for firms.
In Norway’s sovereign wealth fund’s risk management guidelines for carbon emissions, it states that companies engaged in activities that lead to significant clearing of tropical forests should have a strategy in place for stricter future regulation and tropical forest conservation:
“Companies engaged in activities with a direct or indirect impact on tropical forests should assess impact through, for example, life-cycle analysis, and have a strategy for reducing deforestation as a result of their own activities or from their supply chains.”