Norway's KLP explains how it exits assets in conflict zones
Businesses and their shareholders are under rising pressure to ensure they are respecting human rights in light of proliferating conflicts, from those in Gaza to Myanmar, Sudan to Ukraine, and beyond.
Some organisations, such as Norwegian pension fund KLP and Japanese brewer Kirin, have taken a firm stance by exiting investments in Asia and elsewhere that fall short of their expectations in terms of human rights protection.
KLP
CLEAR EXPECTATIONS
For instance, KLP provides clear expectations to its investee companies, Kiran Aziz, head of responsible investments at the pension provider, told AsianInvestor.
The Nkr762 billion ($73 billion) fund’s exclusion of Caterpillar in June this year came after it had exited at least 16 other companies that were allegedly contributing to building and maintenance of Israeli settlements in occupied Palestinian territory, she said.
KLP excluded Caterpillar over risks that the company may be contributing to human rights abuses in the West Bank and Gaza by supplying bulldozers and other equipment that has been used to demolish Palestinian homes and infrastructure.
Before June 17, KLP had held Caterpillar shares and bonds worth NKr728 million ($69.7 million).
It sold them after not seeing any moves by the US company to address the risks, despite several months of dialogue.
During a recent webinar, Aziz said: “It's important to hold companies accountable in terms of exclusion, if they are not able to show any progress in terms of risk management or they are not taking our expectations as responsible investors seriously.”
The September 12 webinar, titled ‘Business is never neutral’, was hosted by the London-headquartered Business & Human Rights Resource Centre (BHRRC).
She also recommended that investors should “always ask further questions on how the company's guidelines and commitments are being practised in the areas of conflict".
Businesses need to be transparent in this respect, Aziz added, and so do investors. “This is why, when we excluded Caterpillar, we gave a quite thorough exclusion document to show where we draw the line – which could be of value for other investors and wider stakeholders.”
KLP is also looking into arms producers to assess their involvement in weapons transfers to countries in conflict, Aziz told AsianInvestor.
OTHER ASIA EXCLUSIONS
It exited investments in India's Adani Ports and Special Economic Zone in June 2021 over unacceptable risk for humanitarian law and human rights violations through its operations with military-owned conglomerate Myanmar Economic Corporation.
KLP has also, over the years, worked to promote responsible ship-breaking practices, Aziz said.
"A lot of ships are being sent for breaking in countries such as India, Pakistan and Bangladesh, which for a long time lacked sufficient regulations and adequate culture to reduce the potential risks of human and labour rights violations and serious environmental damage."
KLP has excluded several companies that disposed of ships to the above-mentioned countries, including Evergreen Marine, Korea Line, Precious Shipping, and Thoresen Thai Agencies.
KIRIN’S MYANMAR EXIT
Another example of similar action in conflict zones comes from Japan's Kirin Holdings, which drew its own line shortly after the February 2021 coup by the country's military, amid international pressure against the junta from investors and others.
The brewer announced the termination of its joint venture with Myanma Economic Holdings Public Company Limited (MEHPCL), a conglomerate with links to the military.
Kirin ultimately reached an agreement with MEHPCL that guaranteed 12 months of continuous employment of the brewery’s staff after the withdrawal, among other things, said Ryosuke Mizouchi, an adviser to the brewer and its former chief sustainability officer, during the BHRRC webinar.
In an example of positive pressure from investors, Norges Bank, which manages Norway’s sovereign wealth fund, had placed Kirin under observation in May 2021 over the latter’s relationship with Myanmar’s military.
Norges Bank ended the observation in February 2023 after Kirin ended the relationship and exited the country.
“The exit was Kirin’s own decision,” said Mizouchi, “but I think investors like Norges Bank and KLP can encourage companies to make the right decisions through engagement.”
There is a growing range of resources outlining best practice on this topic.
The UN has published guidance entitled 'Heightened Human Rights Due Diligence for Business in Conflict-Affected Contexts', which includes details of what a “responsible exit” would look like in different contexts.
International Finance Corporation, the World Bank's private-sector arm, is also developing an approach to responsible exits and has published a draft to that end.