Norway’s Pension Fund Global Excludes Chinese Firm for Environmental Damage Risk

Norges Bank Investment Management, which manages Norway’s $1.4 trillion sovereign wealth fund, said it has decided to exclude from the fund a Chinese state-owned hydroelectric power company over environmental damage risk and initiate observation of a British oil and gas infrastructure company due to “risk of gross corruption.”

The firm also decided to end a specific ownership exercise related to an Indian chemical company that had been recommended to be placed under observation in 2018 over alleged human rights violations.

The executive board of Norway’s sovereign wealth fund said it has decided to exclude the Power Construction Corp. of China Ltd., known as PowerChina, due to the risk of “contributing to or being responsible for serious environmental damage” related to the company’s hydropower development in the Batang Toru region of Indonesia.

According to the recommendation from Norges Bank’s Council on Ethics, PowerChina’s subsidiary Sinohydro Corp. is responsible for the construction and operation of the Batang Toru hydropower project, located in North Sumatra, Indonesia. The project is in the middle of a Key Biodiversity Area, which designates areas of international importance in terms of biodiversity conservation, and is home to the Tapanuli orangutan, which the most endangered species of great apes, with fewer than 800 left in their only remaining habitat.

The council said it concluded that the construction of the hydropower project in Batang Toru “will have a destructive and permanent impact on the environment, which will pose a serious threat to the survival of this orangutan species as well as other critically endangered species.”

Norges Bank said PowerChina has not replied to the Council of Ethics’ investigation questions. PowerChina could not be reached for comment.

NBIM also decided to place U.K.-based oil and gas infrastructure firm Petrofac Ltd. under observation for three years due to an unacceptable risk of gross corruption or other serious financial crimes. The Council on Ethics alleges that Petrofac, or its subsidiaries, may be linked to allegations or suspicions of corruption in six countries over 15 years. It said its investigation into the company found that all of the cases relate to allegations of bribery or suspicious transactions made through subcontractors in order to win contracts for Petrofac subsidiaries.

The council noted that a former Petrofac executive pled guilty to 14 counts of bribery involving more than $80 million in kickbacks paid out to win contracts worth more than $8 billion. It also said that out of the total amount allegedly paid in bribes, the company has pled guilty to $44 million of them.

Norges Bank acknowledged that a U.K. judge said that Petrofac has significantly strengthened its compliance organization and due diligence processes and replaced large parts of the board and management since the corruption took place.

However, “uncertainty still attaches to some elements of Petrofac’s compliance program, its corporate governance, and the change in culture the company now claims to have implemented,” the council said in its recommendation. “Petrofac’s new compliance organization was also put in place not long ago, making it difficult to fully assess the impact of the company’s anti-corruption measures.”

A Petrofac spokesperson stated, “The [Serious Fraud Office]’s investigation into Petrofac concluded in October 2021, and all penalties imposed by the court have been paid by the company. Today, Petrofac has a comprehensive and robust compliance and governance regime.”

Norges Bank’s executive board also said it decided to end a special exercise of ownership in Indian chemical company UPL Ltd. In 2018, the council recommended that Norges Bank place UPL under observation; however, the executive board instead decided that the matter should be taken up with the company through active ownership over a five-year period, which has now ended.

The executive board said that, based on measures UPL and subsidiary Advanta have implemented over the course of the period, it finds the risk of future norm violations “appears to be reduced,” adding that it “has therefore decided to conclude the special dialogue with the company.”